January 07, 2015

Just two years ago we noted the staggering level of the federal government's recovery-- approximately $5 billion--under the False Claims Act, 31 U.S.C. §§ 3729-3733 (the "FCA" or the "Act"). Not to be outdone, 2014 saw a new, historical high-water mark of $5.7 billion in recoveries. And this recent history, and forecasts for 2015, suggest the flood of FCA activity will not abate any time soon.

These trend lines are sobering. During the past five years, since the Fraud Enforcement and Recovery Act ("FERA") amended the FCA in 2009, the government has collected nearly $23 billion under the Act, and has initiated nearly 4,000 new FCA matters. Before 2010, there was just one year in the history of the FCA when more than 700 new FCA matters were filed. But each year since 2010 has seen more than 700 new FCA suits--with 804 new matters docketed in 2014 alone.

In addition, the post-FERA era has featured a drastic increase in the activity of FCA whistleblowers, or "relators." Although the current whistleblower provisions were added to the Act twenty-eight years ago, more than a third of all FCA qui tam actions since that time have been filed in the past five years. Indeed, in 2014, more than 700 new qui tams--among more than 800 total newly initiated FCA matters--were filed for the second year in a row. As a result, as the federal government's recoveries have soared in recent years, so too have relators' bounties. In 2014, relators raked in $435 million--their second-highest total ever. 

With this type of money sloshing around in FCA settlements and judgments, it is no wonder that both the government and qui tam relators are increasing the intensity with which they pursue FCA matters. Recently, for example, the Department of Justice's Criminal Fraud Section signaled that it would increase its focus on FCA matters. As Assistant Attorney General for the Criminal Division Leslie R. Caldwell put it in a September 2014 speech, the DOJ will "be stepping up [its] use of one tool [to combat crime]. . . [and] investigating and filing cases under the False Claims Act. Through our Fraud Section, we will be committing more resources to this vital area, so that we can move swiftly and effectively to combat major fraud involving government programs."[1]

During the past year, the government also scoured new industries in search of recoveries. Many blockbuster settlements behind the high recoveries of recent years have involved pharmaceutical manufacturers, and cases targeting companies in that industry continued to be active in 2014. But this past year, financial institutions accounted for the majority of this year's federal FCA haul, contributing $3.1 billion to the federal coffers in connection with settlements relating to federally backed mortgages--easily a record for cases involving allegations of financial fraud. By further diversifying its enforcement activities, the federal government will ensure that future FCA recoveries are just as fruitful. In the meantime, and as an inevitable consequence, companies in industries with even indirect financial relationships to the federal fisc should prepare for increased scrutiny.

As in years past, we first address in this update enforcement activity under the FCA during the fiscal year ending September 30, 2014--focusing on total recoveries, the growing percentage of FCA lawsuits brought as qui tam lawsuits, settlements and judgments in the last six months, summaries of significant trials, and industry breakdowns of FCA activity. We then analyze significant developments in FCA jurisprudence during the latter half of the year. Lastly, we turn to the legislative activity relating to the Act--or state equivalents--over the past six months. (Our 2014 Mid-Year False Claims Act Update assessed the case law and legislative developments over the first half of the year.) A collection of Gibson Dunn's recent publications on the FCA, including more in-depth discussions of the FCA's framework and operation along with practical guidance to help companies avoid or limit liability under the FCA, may be found on our Website.

I.    FCA Enforcement Activity

A.    Total Recovery Amounts: The DOJ Shatters Records with $5.7 Billion in Civil FCA Recoveries

As noted above, the federal government obtained nearly $5.7 billion in civil settlements and judgments under the FCA during the 2014 fiscal year.[2] Recoveries from banks--a whopping $3.1 billion--made fiscal year 2014 a record year, as the DOJ settled with four different banks for allegations of false claims pertaining to federally backed mortgages.[3] This year's sum is the largest annual recovery in history, surging past 2012's $4.9 billion and 50% higher than 2013's $3.8 billion. Fiscal year 2014 was the fifth consecutive year in which the DOJ recovered more than $3 billion, and the three largest annual recoveries all have been in the past three years.[4] Since January 2009, the DOJ has recovered $22.75 billion under the FCA--more than half of total recoveries since 1986, when Congress substantially amended the Act.[5]

Fiscal year 2015 promises to be another big year. More than 800 total new FCA matters were initiated in fiscal year 2014--the second straight year hitting that milestone--and the DOJ has already announced 22 FCA settlements for the first quarter of fiscal year 2015 (October through December 2014), including a $350 million settlement in a case involving alleged violations of the Anti-Kickback Statute.[6] In that time, the government also has brought at least another four FCA suits.[7]

B.    Qui Tam Activity

As in recent years, whistleblower suits were a key driver of FCA recoveries in 2014. Of the $5.7 billion in fiscal year 2014 recoveries, more than half--nearly $3 billion--was recovered through lawsuits originally filed by whistleblowers.[8] Whistleblowers initiated 713 of the 804 FCA cases filed during the 2014 fiscal year. That represents the second highest number of new qui tams ever, trailing only last year's 754 new filings. The number of qui tam suits per year has doubled in recent years, rising from between 300 to 400 (from 2000 to 2009) to over 700 in fiscal years 2013 and 2014.[9]

In total, since 1986, whistleblower qui tam cases have led to $29.2 billion in government recoveries, with nearly half ($14 billion) of that amount recovered in the last five years. Whistleblowers filed 9,960 FCA suits between 1986 and 2014 and netted $4.7 billion in awards, including $435 million during fiscal year 2014. Overall, about 67% of all FCA recoveries since 1986 can be attributed to qui tam matters.[10]  The chart below demonstrates both the increase in overall FCA litigation activity since 1986 and the distinct shift from largely government-driven investigations and enforcement to qui tam-initiated lawsuits.

Number of FCA New Matters, Including Qui Tam Actions

Number of FCA New Matters, Including Qui Tam Actions

Source: DOJ Office of Public Affairs (Nov. 20, 2014)

When a whistleblower brings an FCA action, the government may choose to intervene, and it does so about 20% of the time.[11] Those cases in which the government intervenes account for a disproportionately large amount of total recoveries against defendants. Although about 80% of all qui tam claims leave relators with the option to move forward with the claims without government involvement, those cases account for merely 3.6% of the total recoveries in all whistleblower suits ($1.04 billion out of $29.2 billion).[12] That disparity was particularly acute in 2014, when just 1% of the government's FCA proceeds came from declined cases.[13] Although recoveries in cases where the government declines to intervene fluctuate dramatically from year to year, one thing remains clear: government intervention is the surest indicator of potential recovery in the case.

Settlement or Judgments in Cases where the Government
Declined Intervention as a Percentage of Total FCA Recoveries

Settlement or Judgments in Cases where the Government Declined Intervention as a Percentage of Total FCA Recoveries

Source: DOJ Office of Public Affairs (Nov. 20, 2014)

Increasingly, the role of FCA qui tams in government enforcement is not limited to civil recoveries, particularly as evidenced by the new DOJ procedure, which reflects increased involvement by the Criminal Division. As Assistant Attorney General for the Criminal Division Leslie R. Caldwell recently announced, "all new qui tam complaints are shared by the Civil Division with the Criminal Division as soon as the cases are filed."[14] This policy will raise the stakes even higher for FCA defendants and likely will prolong investigations of sealed qui tam allegations given the greater number of players involved. The government also has placed "renewed emphasis on non-monetary remedial measures," including "clear, public statements about the misconduct" by the defendants.[15]

C.    Noteworthy Settlements Announced During the Second Half of 2014

As we predicted in our 2014 Mid-Year Update, the latter half of 2014 was even more active than the first half in terms of notable enforcement actions and related settlements. A look back at that Update reveals that the government set out at a strong pace, recovering more than $2.06 billion by the end of June. More than half of that sum came from three financial institutions that settled FCA claims relating to alleged mortgage origination and underwriting practices. Settlements with financial institutions also represented the majority of the government's recoveries during the second half of 2014. But that time period also saw multiple, noteworthy settlements with companies in health care, life sciences, defense, and procurement sectors. We summarize below a number of the settlements announced during the past six months (including several that will be tallied in the federal government's 2015 fiscal year). 

Federal Settlements

  • On July 1, 2014, a multinational banking and financial services company agreed to pay $10 million to resolve claims that it failed to exercise sufficient oversight over the foreclosure charges it submitted to the Federal Housing Administration ("FHA") and Fannie Mae for reimbursement. The settlement resolved allegations that the company had failed to create or maintain systems to review foreclosure-related fees and charges submitted by outside counsel and other third-party providers during 2009 and 2010 that were then submitted to the FHA and Fannie Mae for reimbursement.  In connection with this settlement, the federal government also joined a private whistleblower lawsuit filed under seal pursuant to the FCA. The lawsuit will remain under seal as the government's investigation continues.[16]
  • On July 21, 2014, a hospital system, two hospital-affiliated clinics, and a physicians' group consented to pay $24.5 million to settle allegations that they violated the FCA by paying or receiving financial inducements in connection with Medicare claims. The government alleged that the two hospital-affiliated clinics agreed to pay the physicians' group a percentage of Medicare payments for tests and procedures referred by the group's physicians. In addition, the settling defendants agreed to work with the U.S. Department of Health and Human Services Office of Inspector General to undertake internal compliance reforms and to submit their federal health care program claims for independent review over the next five years. The whistleblower in this case, a physician formerly employed by the physicians' group, will receive $4.41 million as his share of the settlement.[17]
  • On July 24, 2014, the DOJ announced that an $80 million judgment had been entered against a global financial company for allegedly defrauding the Supplier Credit Guarantee ("SCG") Program of the U.S. Department of Agriculture ("USDA"). The company, the government alleged, received payment guarantees under the SCG Program from U.S.-based exporters, knowing that affiliated exporters and importers were ineligible for SCG Program financing. The government further alleged that the company's vice president received bribes from exporters, and that the company submitted claims to the USDA for losses incurred when importers defaulted on payment obligations.[18]
  • On July 28, 2014, an ocean carrier agreed to pay $9.95 million to settle allegations that it failed to separately state fuel surcharges for rail and ocean transport on intermodal shipments where customers subsequently billed the U.S. Department of Defense for the fuel surcharges as if the entire shipment were by ocean. The whistleblower who brought the qui tam suit will receive $2.5 million in addition to $950,000 for attorneys' fees and court costs from the settlement amount.  In August 2014, a co-defendant shipping carrier agreed to pay $700,000 in a settlement resolving the same fuel surcharge related allegations.[19]
  • On August 1, 2014, the DOJ announced that a manufacturer and vendor of information technology products and services agreed to pay $32.5 million to resolve allegations that the manufacturer overcharged the U.S. Postal Service ("USPS") for products from October 2001 to December 2010. The government alleged that the manufacturer failed to comply with pricing terms of its contract with USPS, including a term requiring the manufacturer to provide USPS with prices no greater than those offered to its customers with comparable contracts. The manufacturer, the government also alleged, made misrepresentations during its contractual negotiations with USPS about its pricing and its plans to provide USPS with the most favored customer pricing. The settlement did not include any determination of liability.[20]
  • On August 4, 2014, a large operator of acute care hospitals agreed to pay a total of $98.15 million to settle multiple lawsuits. The government alleged that from 2005 to 2010 the company knowingly billed government health care programs for more expensive inpatient services when it should have billed those services as outpatient or observation services. To resolve these allegations, the company agreed to pay $89.15 million. In addition, the company agreed to pay the government $9 million to settle allegations that one of the company's affiliated hospitals improperly billed the Medicare program for certain inpatient procedures and for services rendered to patients referred in violation of the Physician Self-Referral Law (commonly known as the Stark Law). The settling defendants also agreed to work with the U.S. Department of Health and Human Services Office of Inspector General to engage in additional compliance efforts over the next five years. Under the compliance agreement, the company must retain independent review organizations to review the accuracy of inpatient services claims provided to federal health care program beneficiaries. The settlement resolved several qui tam lawsuits filed by whistleblowers.[21]
  • On August 8, 2014, a pharmaceutical distributor agreed to a settlement with the U.S. government under which it will pay $18 million to resolve allegations that it failed to comply with the shipping and handling requirements of its vaccine distribution contract with the Centers for Disease Control and Prevention ("CDC"). The government alleged that the company was required by contract to maintain the vaccines at proper temperatures, aided by electronic temperature monitors set to detect when the air temperature in the box deviated, and that the company had failed to set the monitors to the appropriate range. The company allegedly then submitted false claims to the CDC for shipping and handling services when it had not satisfied its contractual obligations. A whistleblower complaint also initiated this case.[22] 
  • On August 18, 2014, a nonprofit health care network agreed to pay $35 million to resolve allegations that its hospitals submitted false bills to Medicare as well as other federal and state health care programs from 2004 to 2011. The government alleged that these hospitals submitted inpatient rehabilitation facility services to Medicare, the Federal Employees Health Benefit Program, and the Arizona Health Care Cost Containment System that were not properly reimbursable under applicable coverage criteria as the patients did not qualify for those services. The whistleblower that originally filed the case will receive $5.95 million as her share in the settlement. The settlement marked the largest-ever False Claims Act recovery for the State of Arizona.[23]  
  • On August 18, 2014, the former owner of a chemotherapy clinic agreed to pay $5.7 million to settle allegations that she defrauded Medicare, Medicaid, and private insurers. According to the whistleblowers, the clinic allegedly reused syringes, billed payers for reimbursement of higher quantities of drugs than actually purchased, and drew multiple patients' chemotherapy drugs from the same bag thereby denying patients the full dosage they should have received. The former owner pled guilty in a related criminal case and was sentenced to twenty years in prison as well as $8.4 million in fines. The $5.7 million agreed upon in the settlement will be taken out of the $8.4 million in criminal fines and restitution. Three whistleblowers will share $500,000 in settlement proceeds.[24]
  • On August 21, 2014, the DOJ announced that it had finalized its settlement with a multinational banking and financial services company, which agreed to pay $16.65 billion to resolve federal and state claims against the company and its subsidiaries. This represents the largest civil settlement with a single entity in American history. As part of the settlement, the company and one of its subsidiaries ultimately agreed to pay $1.85 billion to settle alleged liability under the FCA.[25] The company and its subsidiary allegedly made false representations to government-sponsored enterprises Fannie Mae and Freddie Mac that the mortgage loans they received from defendants were quality investments. According to the government, the company and its subsidiary allegedly were aware that residential mortgage loans they made to borrowers were defective (and failed to disclose that fact) and based on inaccurate representations and warranties to Fannie Mae and Freddie Mac. As for the rest of the settlement, the company will pay nearly $10 billion to resolve federal and state claims pursued by the Residential Mortgage-Backed Securities Working Group, a joint federal-state task force including representatives from the DOJ and the U.S. Securities & Exchange Commission, among other regulators. The settlement also includes a $5 billion civil penalty to settle claims by the DOJ under the Financial Institutions Reform, Recovery, and Enforcement Act.[26]
  • On September 3, 2014, a medical device manufacturer agreed to pay $8.3 million to settle allegations accusing the company of providing medical tools to the Departments of Defense and Veterans Affairs that failed to comply with country-of-origin regulations set forth in government contracts.  The whistleblower will receive $2.3 million from the settlement, and the company also agreed to pay $3 million in attorneys' fees.[27]
  • On September 17, 2014, five defense contractors agreed to a settlement in which they will pay $5.5 million to settle whistleblower allegations that they sold the Department of Defense deficient and nonconforming batteries meant for combat vehicles deployed to Iraq. The whistleblower who filed the case will receive $990,000.[28]
  • On September 24, 2014, a pharmaceutical company agreed to pay $56.5 million to settle allegations that it made false and misleading statements in the marketing and promotion of several drugs treating attention deficit hyperactivity disorder. Of the $56.5 million, the federal government will receive $35.7 million and state Medicaid programs will receive $20.8 million. The company also entered into a corporate integrity agreement with the U.S. Department of Health and Human Services Office of Inspector General ("HHS OIG"); under the terms of the agreement, the company will reform its future marketing efforts. No determination of liability has been made. The whistleblower in this case, a former executive at the pharmaceutical company, will receive $5.9 million.[29]  
  • On September 26, 2014, a pharmacy benefit management company agreed to pay $6 million to resolve claims that the company knowingly declined to reimburse Medicaid for prescription drug costs paid on behalf of dual eligible individuals. Dual eligible individuals are covered by both Medicaid and a private health plan, and the defendant was allegedly required to charge costs to the private insurer, not Medicaid. The settlement included no determination of liability. The whistleblower in this case, a former employee at the company, will receive $1.02 million.[30]
  • On October 7, 2014, a company specializing in satellite maintenance, wireless network solutions, telecommunication services, and security systems agreed to pay $13.7 million to settle claims that it allegedly overbilled the government. The government alleged that the defendant knowingly increased the amount billed by including work performed by employees who did not meet required job qualifications.[31]
  • On October 9, 2014, a pharmaceutical services company agreed to pay $9.5 million to settle allegations that it engaged in double-billing, billed for prescriptions not actually provided, and made false statements to receive prior authorization from Medicare Part D sponsors. As part of the settlement, the company resolved claims that representatives lied to insurance companies and that the company had inadequate procedures and auditing processes to ensure compliance. The company also agreed to pay $465,423 to New York State.[32]
  • On October 10, 2014, an aerospace company resolved allegations that it falsely claimed labor charges by agreeing to pay $23 million. The government alleged that the company improperly submitted bills for labor costs on maintenance contracts that included costs that violated the contract requirements. The settlement involved a qui tam lawsuit, and the whistleblower who filed the suit will receive approximately $3.9 million from the settlement.[33]
  • On October 10, 2014, a health care services firm and its subsidiary agreed to pay $38 million to the United States and eight states to settle claims that it allegedly improperly billed Medicare and Medicaid. The firm allegedly billed the government for purportedly worthless nursing services, and medically unnecessary physical, speech, and occupational rehabilitation services. The federal government will receive $32.3 million of the settlement, while several states will receive $5.7 million total. Additionally, the firm agreed to a five-year corporate integrity agreement that required a comprehensive compliance program and an independent monitor selected by HHS OIG. The settlement stemmed from two separate qui tam lawsuits; one relator will receive more than $1.8 million and the other will receive $250,000.[34]
  • On October 22, 2014, a leading dialysis services provider agreed to pay $350 million to resolve allegations that it paid kickbacks for patient referrals. It was alleged that the provider offered physicians joint venture opportunities in return for referrals. Additionally, it was alleged that the provider manipulated the value of the joint venture so that the physicians would realize an immediate return. The provider agreed as part of the settlement to a civil forfeiture of $39 million. Further, the provider and HHS OIG entered into a corporate integrity agreement, which required the provider to unwind and restructure some business arrangements and appoint an independent monitor. The settlement involved a qui tam lawsuit filed by a former analyst of the provider.[35]
  • On October 24, 2014, the DOJ announced that an antenna and radio systems company resolved allegations it submitted inflated claims by agreeing to pay $10 million. The government alleged that the company knowingly misrepresented the cost to manufacture electronic warfare antennas, resulting in inflated pricing.[36]
  • On October 28, 2014, a university settled allegations that it failed to properly verify wage and salary charges to a federal grant by agreeing to pay more than $9 million. The government alleged that the university failed to appropriately verify that employee wages and charges were being incurred for work actually performed for the grant's purposes. The settlement resolved allegations that the university had failed to use appropriate verification procedures, which resulted in mischarging federal grants for purportedly inappropriate labor costs.[37]
  • On October 29, 2014, a medical device company agreed to pay approximately $6.1 million to settle claims that it paid kickbacks and improperly billed federal health care programs. The company allegedly paid kickbacks to physicians' staff to influence physicians to use the company's devices. The company also allegedly received federal reimbursements for refurbished devices.[38]
  • On October 30, 2014, one of the nation's largest hospital systems agreed to pay $37 million to resolve claims that it charged the government for costlier inpatient services when the patients could have been billed on an outpatient basis. The hospital system also entered into a corporate integrity agreement with HHS OIG that required reviews from an independent review organization. The qui tam whistleblower who filed the complaint, a former employee of the hospital system, will receive about $6.25 million.[39]
  • On November 12, 2014, a home health agency agreed to pay $25 million plus interest to the United States and Tennessee to settle claims that it allegedly upcoded billings for home health care. The government alleged that the agency exaggerated the severity of patients' conditions to increase billings and billed for medically unnecessary services to patients who were not homebound. The agency and HHS OIG also agreed to a corporate integrity agreement. The qui tam whistleblower who filed the lawsuit will receive more than $3.9 million of the recovery.[40]
  • On December 8, 2014, two foreign companies settled alleged civil violations relating to services provided to U.S. troops in Afghanistan and also pled guilty to related charges. The companies agreed to pay $288.35 million in the criminal matter and an additional $146 million to resolve the civil cases alleging violations of the FCA. In the civil cases, the settlement consisted of $101 million to settle allegations that the companies overbilled for food and water they contracted to provide to American soldiers in Afghanistan. The civil settlement also consisted of $20 million to settle allegations that a subsidiary overbilled for fuel purchased by an air field in Afghanistan. Finally, the civil settlement consisted of $25 million to resolve allegations that a subsidiary purportedly falsely billed on a shipping contract by charging the government for higher-priced refrigeration trucks when a lower-priced alternative was used. The qui tam whistleblower who filed the initial FCA lawsuit will receive $16.16 million.[41]
  • On December 8, 2014, a medical device company agreed to pay $40 million plus interest to resolve potential FCA liability. The company allegedly distributed medical devices after being rejected for market clearance by the U.S. Food and Drug Administration ("FDA"). Additionally, the company allegedly encouraged health care providers to submit to the government MRI expenses associated with using the device that were not reimbursable. As part of the settlement, the company agreed not to participate in any federal health care programs for twenty years, and its parent company consented to a series of compliance requirements and audits. The qui tam relator who filed the case will receive about $7 million.[42]
  • On December 19, record storage companies paid $44.5 million to settle claims that they overcharged government entities. The companies had General Services Administration ("GSA") contracts to provide record storage services to government entities through GSA's Multiple Award Schedule program. The companies allegedly failed to satisfy contractual obligations requiring the companies to provide accurate information regarding their commercial sales practices during negotiations and purportedly failed to comply with a price reduction clause. The companies also allegedly charged the government entities for storage that supposedly met the National Archives and Records Administration requirements but did not meet those requirements. The qui tam whistleblowers will collectively receive an $8 million share of the recovery.[43]
  • On December 19, a defense contractor agreed to pay $27.5 million to settle allegations that it purportedly overbilled the government for work performed by underqualified employees. The defense contractor had contracts to provide the Army in Afghanistan and Iraq with rapid access to products and services. The defense contractor allegedly violated the contracts by using employees who lacked the required job qualifications and billing the United States as if the employees had been more qualified.[44]

State Settlements

As noted in our 2014 Mid-Year Update, states have reported significant recoveries under individual state false claims statutes. The last six months of 2014 continue to illustrate the states' enforcement activities:

  • On July 17, 2014, a pharmaceutical manufacturer agreed to pay $19.5 million to the State of Texas to resolve civil Medicaid fraud allegations. State law requires drug manufacturers to report the prices they charge to pharmacies, distributors, and wholesalers for their products as part of the calculation for Medicaid reimbursement. The manufacturer allegedly reported inflated market prices for the drugs resulting in reimbursement by Medicaid at inflated rates.[45]
  • On August 22, 2014, an appliance retailer and its principal owner agreed to pay $1.56 million to resolve allegations that they failed to collect and pay sales taxes and corporate franchise taxes to the State of New York. Unlike the federal FCA, the New York False Claims Act includes tax fraud as a basis for legal action. The whistleblower who filed this action will receive approximately $313,000 from the settlement.[46]
  • On September 24, 2014, a generic drug manufacturer agreed to pay the State of Texas $39.75 million to resolve allegations that it reported inflated drug prices to the Medicaid program in violation of the Texas Medicaid Fraud Prevention Act. These inflated prices allegedly resulted in increased reimbursements. The Texas Attorney General's Office will receive $4 million in attorneys' fees and costs.[47]
  • On October 3, 2014, a pharmaceutical manufacturer agreed to pay $2.9 million to the State of Louisiana to resolve allegations that the company unlawfully marketed drugs and thereby caused false claims to be submitted to the Louisiana Medicaid program. Louisiana declined to participate in a recent federal and multi-state settlement regarding the same claims where the State was offered approximately $740,000.[48]

D.    Trials

Although the vast majority of FCA cases are resolved before trial, several cases proceeded to trial in 2014. The relative rarity of FCA trials stems from the potentially enormous stakes: if a defendant loses at trial, the FCA provides for statutory treble damages, civil penalties ranging between $5,500 and $11,000 per violation, and attorneys' fees and costs to the prevailing plaintiff. Additionally, and perhaps more significantly, an adverse verdict in an FCA case can cause the government to suspend or terminate further program involvement or government contracts with the defendant. For many corporate defendants, this would be a death sentence. Taken together, these factors mean that it is often just too much of a risk for defendants to take an FCA case to trial. Thus, when cases actually proceed to trial, the results of those cases--and lessons to draw from them--are always of great interest. Below is a summary of some of the significant FCA cases that proceeded to trial in 2014.

  • On March 27, 2014, a defendant government contractor successfully defeated an FCA case at trial when a jury found that the contractor did not fraudulently lowball its bid for a U.S. Air Force contract by more than $400 million in violation of the FCA. The case proceeded to trial after the Ninth Circuit reversed the district court's grant of summary judgment to the government contractor; we discussed that widely criticized decision regarding the "underbidding" theory of FCA liability in our 2012 Year-End False Claims Act Update. The employee-relator who filed the suit argued not only that the contractor intentionally lowballed the estimate to win the government contract, but also that he had been fired by the contractor for his allegations of fraud. But the contractor prevailed on its argument that just because it had underestimated the final cost of the project, that did not mean the initial estimate had been fraudulent. The defendant also succeeded in showing that it had not retaliated against the employee but had terminated him for performance-based reasons.[49]
  • On August 1, 2014, a jury in federal court in Virginia handed down a $33.6 million verdict (trebled to $100.8 million) in a case brought by the United States and two relators against a defendant shipping company. The government alleged that the shipping company was liable for submitting false claims for the shipping of military household goods.[50] The jury found that the contractor submitted nearly 59,000 alleged false claims, essentially one false claim per invoice submitted to the government. Given the FCA's minimum penalty of $5,500 per violation, large amounts in civil penalties may be at issue, on top of the damages assessed at trial and more than $24 million in penalties awarded in a previous trial. As we covered in these pages last year, after the first trial, the Fourth Circuit held that that penalties award was not unconstitutionally excessive, even though there were no proven damages for the alleged related false claims. See United States ex rel.  Bunk v. Gosselin World Wide Moving, 741 F.3d 390 (4th Cir. 2013). Before both trials, the defendant had spun off its government contracting business to another entity, and the United States is now seeking successor liability for the trial damages, arguing that the acquisition of the defendant constituted fraud on the government because the purpose of the acquisition allegedly was to frustrate the government's ability to collect on the FCA judgment.[51]
  • On October 20, 2014, a federal jury in Marshall, Texas entered a verdict of $175 million against a guardrail manufacturer for an alleged violation of the FCA, after a previous trial in July 2014 resulted in a mistrial.[52]  The defendant had received the approval of the Federal Highway Administration to manufacture guardrails that were designed to absorb the impact of a collision.[53]  The relator, a competitor of the defendant, alleged that the defendant made alterations to its guardrail design without first seeking approval from the Highway Administration. The relator further alleged that those alterations made the redesigned guardrails more likely to injure persons upon impact, but the United States declined to intervene, and the Federal Highway Administration repeatedly reaffirmed that the defendant's products were eligible for reimbursement.[54] As this matter indicates, the FCA is increasingly being used to gain an advantage against competitors.
  • Last year, a California federal jury found a defendant pipe manufacturer liable for selling faulty pipes to several states in violation of the FCA.[55] The suit, filed by one of the defendant's former quality assurance engineers, alleged the defective pipes failed to satisfy the government's required strength tests, making them unstable and more likely to burst when put to use. This December, a federal judge held that the jury's verdict would only apply to five exemplar plaintiffs.[56] This ruling leaves more than forty non-exemplar plaintiffs' claims to be adjudicated in a second phase of this qui tam action. Whether the judge will allow the first phase finding of liability to be used in the second phase of the trial remains to be seen.
  • Two former university employees filed suit on behalf of the federal government and the State of Florida, alleging the university that employed them violated the FCA by accepting student financial aid while in knowing violation of employee compensation rules.[57] After a four day bench trial, the court found the university liable, but that plaintiffs proved no actual damages and only two false claims, resulting in a total of only $11,000 in civil penalties.[58] Plaintiffs' counsel requested attorneys' fees of more than $1 million, and a magistrate judge has recommended that number be lowered to an award of $60,000 in fees and approximately $30,000 in costs.[59]

E.    Industry Breakdown

Although fiscal year 2014 saw FCA recoveries from a wide range of industries and involving numerous different government programs, the major news of the year came from the settlements from financial institutions allegedly relating to the financial crisis of 2008. The DOJ only announces industry-specific statistics for defense and health care, which historically have been known as the primary areas of FCA activity. But this year's record sum, reflecting major recoveries from a number of financial entities, shows that the financial industry should not be ignored as a source of FCA activity.

Annual FCA Recoveries by Industry (2000-2014)

Annual FCA Recoveries by Industry (2000-2014)

Source: DOJ Office of Public Affairs (Nov. 20, 2014)

                    1.    Health Care and Life Sciences Industries

In recent years, the bulk of FCA recoveries came from the health care industry. Although recoveries from the financial industry led the pack in 2014, the health care industry remained a major target, as the DOJ recovered $2.3 billion in fiscal year 2014, the fifth straight year that the department has recovered more than $2 billion in such cases.[60] FCA cases in the health care industry generally involve allegations of fraud against federal health care programs, such as Medicare, Medicaid, and TRICARE, which provides health care to members of the armed services and their dependents. Since January 2009, when the Health Care Fraud Prevention and Enforcement Action Team ("HEAT") was created, the DOJ has recovered $14.5 billion in cases involving alleged for health care fraud under the FCA.[61]

In its spring 2014 Semiannual Report to Congress, HHS OIG reported having commenced 266 civil actions, including FCA actions, in the first half of the 2014 fiscal year.[62] HHS OIG also reported expected recoveries of approximately $3.1 billion, including about $2.83 billion in "investigative receivables."[63] Fiscal year 2015 also started with a bang, as the DOJ announced a $350 million FCA settlement stemming from alleged kickbacks paid by a Denver-based dialysis provider.[64]

As in 2013, the government's aggressive prosecution of certain types of financial incentives involving federally funded medical services continued to be a prevalent theme this past year.[65] The Anti-Kickback Statute ("AKS"), which aims to ensure that patients receive medical care based on their needs rather than providers' financial incentive, prohibits offering, paying, soliciting or receiving payment to induce referrals of products or services covered by federally funded health care programs.[66] Under the Patient Protection and Affordable Care Act of 2010 ("PPACA"), a claim for payment by a federal health program that "includes items or services resulting from" an AKS violation "constitutes a false or fraudulent claim" for FCA purposes.[67] Another federal statute, the Stark Law,[68] also prohibits physicians from referring Medicare patients to a provider with which s/he has a financial relationship. Numerous cases settled by the government in 2014 involved Stark Law allegations. For example, one Florida hospital settled with the government for $85 million after it allegedly submitted claims that violated the Stark Law.[69]

The government continues to recover substantial sums from pharmaceutical and medical device companies for various types of alleged misconduct covered by the FCA. The beginning of Fiscal Year 2014 saw one of the largest health care sector settlements ever when a pharmaceutical company paid $2.2 billion, including $1.7 billion in civil damages and penalties, to resolve off-label promotion and kickback allegations.[70]  Pharmacies and medical device companies were also hit with large FCA settlements in 2014. A large nursing home pharmacy company settled with the government for $124 million to resolve claims that it used below-cost prescription drugs to induce nursing homes to use the company as their pharmacy provider.[71] And a medical device company settled with the government for $30 million for allegedly selling defective devices.[72]

The government also reached significant settlements with a variety of health care providers of different stripes in cases involving allegations of billing for unnecessary or uncovered medical procedures. For example, one of the nation's largest providers of home health services agreed to pay $150 million to settle allegations that it billed Medicare for services not covered, charged the government for medically unnecessary procedures, and violated the Anti-Kickback Statute.[73] And national providers were not the only ones in the crosshairs in 2014. Two separate Kentucky-based hospitals allegedly charged Medicare and Medicaid for unnecessary procedures and agreed to pay $16.5 million and $40.9 million, respectively, to the government as a result.[74]

                    2.    Defense/Procurement

The government continued to tackle a broad range of FCA cases outside the financial and health care industries in fiscal year 2014.[75] Although total recoveries declined from $887 million in 2013,[76] which included a record $664 million FCA judgment against a defense contractor, the DOJ teamed with various government agencies to attack alleged procurement fraud in a broad range of industries. For example, a technology products manufacturer agreed to pay $32.5 million to settle allegations that it overbilled the U.S. Postal Service,[77] and an aerospace manufacturer settled for $23 million to resolve alleged improper billing of labor costs to the Air Force.[78]

The government targeted smaller contractors and smaller alleged frauds, as well. A Colorado mapping company that provided maps for military convoy routes in Iraq settled with the government for $2.1 million for allegedly using unapproved domestic and foreign subcontractors; the case was initially brought by a whistleblower employee.[79] Likewise, a Virginia contractor paid $3.2 million for allegedly submitting false labor charges on a contract to design and build a national security system for Afghanistan.[80]

The lower recovery sum in fiscal year 2014 should not be taken as an indication that the DOJ has let its foot off the pedal. In just the first three months of fiscal year 2015, the DOJ announced eight settlements that recovered $247 million in the defense and other procurement sectors.[81]

                    3.    Financial

Fiscal year 2014 was a banner year for the DOJ's financial fraud crackdown efforts overall and for FCA recoveries in particular. More than five years after the onset of the housing crisis and the Great Recession, the government secured $3.1 billion in FCA settlements from four major financial institutions.[82] Each of the settlements involved allegations of fraudulent origination, underwriting, or sale of federally-insured mortgages.[83] The government's 2014 haul from the four banks was about ten times larger than its total recoveries from the financial industry in 2013 and more than double its record high of $1.4 billion in 2012. Two of the FCA settlements were part of larger alleged financial fraud settlements between the government and banks.[84]

Since President Obama established the Financial Fraud Enforcement Task Force in 2009, the government has recovered $4.65 billion in FCA settlements stemming from alleged fraud relating to federal mortgage programs, two-thirds of which comes from the four 2014 settlements. Attorney General Eric Holder indicated that the government plans to continue to use the Financial Institutions Reform, Recovery, and Enforcement Act ("FIRREA") in tandem with the FCA to pursue alleged financial fraud.[85]

In February, a national banking institution agreed to pay $614 million to settle allegations of improper participation in a federally-insured mortgage program.[86] That was only the tip of the iceberg. In June, the government settled with two more large national banks based on similar allegations, netting $418 million and $200 million for the government, respectively.[87]

Further, as part of a sweeping $16.65 billion settlement with another one of the largest national banks, the government recovered $1 billion for alleged FCA violations.[88] The large settlements mark the end of the government's purported financial crisis claims for those banks, although other banks are believed to be in talks with the Justice Department concerning similar allegations.[89]

The government's pursuit of alleged financial fraud cases extended beyond these large settlements, however, providing further indication that those were not necessarily one-off events that will end FCA enforcement in this area. In July, a French financial institution agreed to pay $80 million for allegedly violating the rules of an export-import credit guarantee program with the Department of Agriculture.[90] That same month, amidst a summer of mega-settlements, yet another major bank agreed to pay $10 million to settle charges that it failed to maintain the necessary infrastructure to review expenses that it then passed along to the FHA for reimbursement.[91]

II.    FCA Case Law Developments

As the multi-million dollar settlements and judgments in the latter half of 2014 demonstrate, the stakes are high in FCA cases. Given the money in play, the government, relators, and defendants continue to try to shape the contours of FCA jurisprudence. Below, we discuss the most important developments in FCA case law over the last six months of 2014.

A.    The Circuits Continue to Address the Scope of the Public Disclosure Bar and the Original Source Exception

Under the FCA's "public disclosure" provision, 31 U.S.C. § 3730(e)(4), a qui tam relator may not bring a suit based on allegations or transactions that have been publicly disclosed through certain channels, unless the relator "is an original source" of the information. Congress intended the public disclosure bar to strike a balance between encouraging whistleblowers and precluding parasitic claims. As cases decided in the second half of 2014 make clear, the courts continue to define the bounds of the public disclosure and original source provisions.

                    1.    Sources That Qualify as "Public" for Purposes of the Public Disclosure Bar

Since the 2010 Patient Protection and Affordable Care Act ("PPACA") amendments to the FCA, the public disclosure bar has precluded claims based on allegations or transactions disclosed in: (1) specified federal proceedings in which the government or its agent is a party; (2) certain federal reports, hearings, audits, or investigations; or (3) the news media. See 31 U.S.C. § 3730(e)(4). (The pre-2010 FCA had also deemed public allegations or transactions disclosed in certain state and local proceedings.) The second half of 2014 saw notable decisions interpreting the categories set forth in section 3730(e)(4).

The scope of the phrase "news media" in the FCA's public disclosure bar is critical, given the amount of information reported each day on various websites. Defendants have long argued that various Internet sources are "news media" for purposes of the bar. In United States ex rel. Kraxberger v. Kansas City Power & Light Co., the Eighth Circuit agreed. The court concluded that the Missouri Public Service Commission, through its website, "functions as a news organization for public utilities and consumers." 756 F.3d 1075, 1079 (8th Cir. 2014). As such, disclosures on the Commission's website--including transcripts of hearings before the Commission--were public disclosures through the "news media." Id. The court's decision was especially noteworthy because it applied the post-PPACA version of the disclosure bar, which does not otherwise pertain to disclosures in state or local proceedings (like the Commission's hearings). See id. at 1078 n.2. The Eighth Circuit also rejected the relator's request to interpret narrowly Schindler Elevator Corp. v. United States ex rel. Kirk, in which the Supreme Court held that responses to FOIA requests are public disclosures because they are administrative reports. --- U.S. ---, 131 S. Ct. 1885, 1893 (2011). The relator in Kraxberger argued that Schindler Elevator should only apply to FOIA requests (1) made by the relator or (2) otherwise publicly disclosed. See 756 F.3d  at 1079. But the Eighth Circuit disagreed, noting that the Schindler Elevator Court expressly contemplated that FOIA requests might be made by persons other than the relator. Id.

In another case testing what constitutes a "public disclosure," the Ninth Circuit held that information conveyed during a deposition taken by the Office of the United States Trustee triggered the FCA's public disclosure bar. Malhotra v. Steinberg, 770 F.3d 853, 858-59 (9th Cir. 2014). The relators there, a bankrupt married couple, claimed that the trustee who administered their bankruptcy corruptly profited from deals involving bankruptcy estate properties. Id. at 855-56. After a former employee of the trustee alleged that the trustee received a "referral fee" from a real estate agent who sold a bankruptcy estate property, the Office deposed the agent. Id. at 856. Because the Office noticed the deposition in the relators' bankruptcy case, they attended the deposition. Id. The agent testified that he paid referral fees to the trustee. Id. The couple then sued under the FCA alleging that the trustee presented fraudulent claims to the U.S. bankruptcy court to secure trustee fees. Id. at 856-57. After concluding that the channels specified in section 3730(e)(4)(A) include administrative investigations like the Office's, the Ninth Circuit decided that the deposition was "public." Id. at 858. Because the relators were "'outsiders' to the administrative investigation conducted by the Trustee's Office," they were members of the public for purposes of that investigation and the deposition constituted a public disclosure. Id. at 859. Although the Ninth Circuit stopped short of addressing whether a deposition would "constitute a public disclosure as to some other member of the public," id., the case clarifies that disclosures to just a few members of the public may suffice to invoke the public disclosure bar.

                    2.    The Amount of Information Regarding the Allegations and Transactions That Must Be Disclosed to Trigger the Public Disclosure Bar

Over the past half year, the federal appellate courts also continued to refine their standards for determining whether a prior public disclosure included sufficient detail to bar a relator's suit.

In two recent decisions, the D.C. Circuit applied its oft-cited test from United States ex rel. Springfield Terminal Railway Co. v. Quinn, 14 F.3d 645, 654 (D.C. Cir. 1994), which asks whether the public disclosure comprised either the "essential elements" of a fraud--such that someone could infer the fraud--or the fraud itself. The Springfield Terminal court reduced the test to the oft-cited equation of whether the public disclosure included either "X + Y" or "Z," where "X + Y = Z" and "X and Y represent [the] essential elements" (i.e., the false statements and the truth) of the fraud (Z). Id.

In United States ex rel. Doe v. Staples, Inc., the D.C. Circuit concluded that the elements of an alleged scheme by office-supply retailers to avoid U.S. anti-dumping duties on pencils made in China were already public. --- F.3d ---, 2014 WL 6765033, at *1-2 (D.C. Cir. Dec. 2, 2014). The court looked to an online database of "manifest data" submitted to U.S. Customs to determine that the retailers' allegedly false representations (X) regarding the pencils' country of origin were publicly available. Id. at *2. The only question, then, was whether information regarding the true country of origin (Y) was publicly available. Because the complaint alleged that pencils made in China had certain "unique" characteristics--and because the U.S. International Trade Commission described several of those characteristics in publicly accessible reports--the D.C. Circuit concluded that the publicly available information included both the X and the Y of the alleged fraud. Id. at *4-5. That public information sufficed to "set government investigators on the trail of fraud." Id. at *4 (quoting Springfield Terminal, 14 F.3d at 655). The court observed that by pleading facts intended to show the retailers knew they were importing Chinese pencils (i.e., the unique attributes of pencils manufactured in China), the relator inadvertently "pled himself out of court." Id. at *5.

By contrast, in United States ex rel. Oliver v. Philip Morris USA Inc., the D.C. Circuit vacated a district court decision dismissing a qui tam suit on public disclosure grounds. 763 F.3d 36, 38 (D.C. Cir. 2014). Again, the case turned on whether one of the essential elements of an alleged fraud was public. The relator alleged that Philip Morris fraudulently certified that it was providing "Most Favored Customer" pricing to military purchasers. Id. at 38-39. Philip Morris countered, and the district court agreed, that because the government "is presumed to know" the contents of its contracts--including the Most Favored Customer provisions--the provisions were public for purposes of section 3730(e)(4). Id. at 40. The district court further found that this disclosure sufficed to publicize the false certifications. Id. The D.C. Circuit disagreed. "The government's own, internal awareness of the information is not one [of the] channel[s]" set forth in the public disclosure provision. Id. at 42. Further, the FCA's 1986 amendments excised a jurisdictional bar tied to the government's knowledge. Id. Thus, the court reasoned that equating the government's knowledge to a public disclosure "would essentially reinstate a jurisdictional bar Congress expressly eliminated." Id. Absent something more than the government's awareness, an essential element of the alleged fraud (the false certifications with the Most Favored Customer provisions) was not sufficiently public. Id. at 42-43.

A pair of recent Seventh Circuit decisions explored similar territory--and declined to apply the statutory bar. In United States ex rel. Heath v. Wisconsin Bell, Inc., the court reversed a district court decision imposing a public disclosure bar. 760 F.3d 688, 689 (7th Cir. 2014). There, a relator who audited telecommunications bills sued Wisconsin Bell on the ground that it was overcharging school districts (despite a contractual agreement to give them favorable pricing). Id. at 689-90. The district court found that another Wisconsin public entity had disclosed (on its website) a contract with Wisconsin Bell containing more favorable pricing than the districts'. Id. at 691. The Seventh Circuit concluded, however, that the contract posted online did not sufficiently disclose the details of the alleged fraud; rather, it "had to be supplemented with knowledge of other pricing--in this case [the relator's] insight regarding the pricing received by the school districts--to establish fraud." Id. As such, the allegations or transactions underlying the relator's claims had not been publicly disclosed. Id. at 691-92.

Similarly, in United States ex rel. Absher v. Momence Meadows Nursing Center, Inc., the Seventh Circuit concluded that public disclosures contained in Centers for Medicare & Medicaid Services ("CMS") surveys and reports were insufficient to bar the relators' suit. 764 F.3d 699, 709 (7th Cir. 2014). Although CMS documented incidents of non-compliant care at the defendant's long-term care facilities, the Seventh Circuit concluded that relators had offered evidence of additional alleged misconduct; further, the CMS reports did not suggest--as relators alleged--that Momence Meadows misrepresented its standard of care. Id. at 708-09. Because this essential element of the fraud claim was not publicly disclosed, the court rejected the defendant's jurisdictional challenge. Id. at 709. Notably, the court also observed that even though the government could have deduced that some of Momence Meadows' claims allegedly were for non-compliant care, the government must also have facts demonstrating scienter. Id. n.10. Although the relators won this battle, they lost the war; their claims failed on the merits, as described below.

                    3.    The Quantum of Information Necessary to Qualify a Relator as an "Original Source"

Just as the PPACA amended the FCA's provision regarding public disclosure channels, it also clarified who is an "original source" under the FCA. In addition to deciding legacy FCA cases under the pre-PPACA version of the "original source" provision, the courts are beginning to apply the new statutory language.

In United States ex rel. Schumann v. AstraZeneca Pharmaceuticals L.P., the Third Circuit assessed whether a relator's knowledge was sufficiently "direct" and "independent" that he satisfied the pre-PPACA statute's original source test. 769 F.3d 837, 840 & n.1 (3d Cir. 2014). The relator, an executive at a national pharmacy benefit manager, alleged that various pharmaceutical companies with which he worked paid inordinately low rebates under the Medicaid Drug Rebate Program by submitting inaccurate best price reports for their pharmaceuticals. Id. at 842-43. The relator maintained that his insider information--gleaned from a review of relevant agreements, discussions with his colleagues, and negotiations with employees of the pharmaceutical companies--amounted to direct and independent knowledge. Id. at 847-48. But the Third Circuit held that "knowledge of a scheme is not direct when it is gained by reviewing files and discussing the documents therein with individuals who actually participated in the memorialized events." Id. at 847. Nor did the relator's business negotiations give him direct and independent knowledge of any inaccurate best-price reports. Id. And the relator's "experience-based belief that misconduct was occurring" was no substitute for the "requisite direct and independent knowledge." Id. at 848.

Similarly, in United States ex rel. Ahumada v. NISH, the Fourth Circuit assessed whether the relator had shown direct and independent knowledge regarding the alleged conduct of multiple defendants. 756 F.3d 268, 274 n.2, 276 (4th Cir. 2014). Whereas other circuits focus on whether the relator's allegations are "supported by" or "substantially similar" to publicly disclosed information, the Fourth Circuit bars claims only if the "qui tam plaintiff's allegations were actually derived from the public disclosure itself." Id. at 274-75 (quoting United States ex rel. Rostholder v. Omnicare, Inc., 745 F.3d 694, 699 (4th Cir. 2014)) (emphasis in original). Applying this narrower test, the court nevertheless concluded that the relator's knowledge regarding the conduct of nearly every defendant was derived from news reports and testimony in a criminal trial related to the alleged fraud at issue. See id. at 275, 277. The relator's complaint against one defendant survived, however, because the relator alleged that a sales manager of that defendant told him about the defendant's improper billing practices. Id. at 278-79. According to the Fourth Circuit, that manager was "not an 'intervening agency' or 'third party,'" such that the relator's resulting knowledge was indirect. Id. at 279 (emphasis in original).  

Like the earlier articulation of the original source provision, the new version requires a fact-intensive analysis of the alleged fraud and prior public disclosures. In United States ex rel. Paulos v. Stryker Corp., the Eighth Circuit held that the post-PPACA public disclosure bar precluded a suit brought by a surgeon against medical device manufacturers. 762 F.3d 688, 694-96 (8th Cir. 2014). There, the district court found that numerous media reports, FDA reports, and federal regulatory disclosures revealed the allegedly fraudulent marketing at issue. Id. at 692-93. On appeal, the surgeon argued that the public sources at issue revealed neither the manufacturers' statements to surgeons about the devices nor facts showing the manufacturers' scienter. Id. at 694. The court rejected the relator's claim that he had knowledge that materially added to the publicly disclosed allegations or transactions. Id. Despite the surgeon's claims that he was among the first to identify a connection between the device and a resulting disease, "[a] relator is not an original source of information . . . simply because he discovered or suspected it first." Id. (emphasis in original).

The Eighth Circuit also flagged, but did not address, an interesting issue that the relator did not appeal. In United States ex rel. Hixson v. Health Management Systems, Inc., the Eighth Circuit held that the pre-PPACA version of the public disclosure bar does not preclude suits unless the public disclosure reveals "the false claim itself." 613 F.3d 1186, 1188 (8th Cir. 2010). The district court in Stryker Corp., however, reasoned that a surgeon's or hospital's submission of false claims would be a "logical consequence" of the defendants' alleged misrepresentations, which were publicly disclosed. 762 F.3d at 694. Because the relator did not challenge this reasoning, the Eighth Circuit did not address "the continuing applicability of Hixson's standard under the current version" of the FCA. Id.

                    4.    The Ninth Circuit Agrees to Reconsider En Banc Its Original Source Standard

Since it decided Wang v. FMC Corp. in 1992, the Ninth Circuit has required relators who claim to be an original source to have "played a part in publicly disclosing the allegations and information on which their suits [are] based." 975 F.2d 1412, 1418 (9th Cir. 1992). The Ninth Circuit's requirement that a relator have a hand in the public disclosure to establish original source status differs from other Circuits, which only require a relator to show "direct and independent knowledge" of the information on which the relator's claims are based to qualify as an original source.

On December 3, 2014, the Ninth Circuit ordered an en banc rehearing of two consolidated cases challenging this standard. See United States ex rel. Hartpence v. Kinetic Concepts, Inc., 2013 U.S. Dist. LEXIS 74833 (C.D. Cal. May 20, 2013), appeal docketed, No. 12-55396 (9th Cir. Dec. 3, 2014); United States ex rel. Godecke v. Kinetic Concepts, Inc., 2013 U.S. Dist. LEXIS 74833 (C.D. Cal. May 20, 2013), appeal docketed, No. 12-56117 (9th Cir. Dec. 3, 2014). In both, the relators asserted that the Supreme Court's decision in Rockwell International Corp. v. United States, 549 U.S. 457 (2007), undermined the requirement that a relator "play[] a part" in the public disclosure to be considered an original source. Appelants' Brief at 10, United States ex rel. Hartpence v. Kinetic Concepts, Inc., No. 12-55396 (9th Cir. Dec. 16, 2013), ECF No. 38. If successful, the relators' challenge to the well-established Wang standard will open the doors to other relators who claim to be original sources under the FCA.

B.    The Scope of the First-to-File Bar Remains a Hotly Contested Issue

The first-to-file bar states that when a relator files a qui tam case under the FCA, "no person other than the Government may intervene or bring a related action based on the facts underlying the pending action." 31 U.S.C. § 3730(b)(5) (emphasis added). As we await a decision from the Supreme Court regarding the first-to-file bar, case law regarding the bar continues to develop.  

                    1.    Must a Prior Case Be Pending to Trigger the First-to-File Bar?

In our Mid-Year False Claims Act Update, we discussed the Supreme Court's July 1, 2014 decision to grant certiorari in United States ex rel. Carter v. Halliburton Co. to resolve a circuit split regarding whether the FCA's "first to file" bar applies even if a prior action is no longer pending (and to address whether the Wartime Suspension of Limitations Act ("WSLA") tolls the statute of limitations in FCA cases). Filed amidst a flurry of amicus briefs, the United States' October 21, 2014 brief merits some attention. The government argued that applying the first-to-file bar even when the prior suit is no longer pending would convert the "first to file bar [into] a draconian version of the public-disclosure bar, forever barring an FCA suit based on the same facts (even one brought by an original source)." Brief for the United States as Amicus Curiae Supporting Respondent at 9, Kellogg Brown & Root Servs., Inc. v. United States ex rel. Carter, No. 12-1497 (U.S. Oct. 21, 2014), 2014 U.S. S. Ct. Briefs LEXIS 3714. In siding with the relator on the first-to-file issue, the Solicitor General departed from a recent decision of a divided panel of the D.C. Circuit and instead subscribed to the position that some view has been taken by the Fourth and Seventh Circuits. Compare United States ex rel. Shea v. Cellco P'ship, 748 F.3d 338, 343-44 (D.C. Cir. 2014) (holding that the first-to-file bar precludes new suits "even if the initial action is no longer pending"), with id. at 345 (Srinivasan, J., dissenting); United States ex rel. Carter v. Halliburton Co., 710 F.3d 171, 183 (4th Cir. 2013) ("[O]nce a case is no longer pending the first-to-file bar does not stop a relator from filing a related case."); United States ex rel. Chovanec v. Apria Healthcare Grp. Inc., 606 F.3d 361, 365 (7th Cir. 2010) ("[Section] 3730(b)(5) applies only while the initial complaint is 'pending.'"); cf. In re Natural Gas Royalties Qui Tam Litig., 566 F.3d 956, 964 (10th Cir. 2009) (stating, in dicta, that "if that prior claim is no longer pending, the first-to-file bar no longer applies").

The government's amicus brief also contended that the WSLA tolls the statute of limitations for criminal suits and civil suits, including those under the FCA.  Brief for the United States at 9-10. Oral argument--during which the Court will hear from the Solicitor General as well--is set for January 13, 2015.

                    2.    The Detail That an Earlier Complaint Must Contain to Trigger the First-to-File Bar

A key question for defendants confronting multiple FCA suits is the extent to which the first-to-file bar precludes later suits premised on similar facts. In United States ex rel. Ven-A-Care of the Florida Keys, Inc. v. Baxter Healthcare Corp., the First Circuit upheld a district court decision applying the first-to-file bar even though the relators alleged details regarding the fraud that an earlier complaint filed by Ven-A-Care, a pharmacy, did not include. 772 F.3d 932, 2014 WL 6737102, at 934 (1st Cir. 2014). The relators, a former Baxter employee and an employee of one of Baxter's pharmacy customers, alleged that Baxter fraudulently inflated the price of its drugs, thereby improperly increasing reimbursement from Medicare and Medicaid. Id. On appeal, the relators argued that Ven-A-Care's complaint was vague and conclusory with regard to Baxter's conduct. Id. at 938. The First Circuit disagreed because "earlier-filed complaints must provide only the essential facts to give the government sufficient notice to initiate an investigation into [the] allegedly fraudulent practices" alleged in the second qui tam action. Id. at *944 (quoting United States ex rel. Heineman-Guta v. Guidant Corp., 718 F.3d 28, 36-37 (1st Cir. 2013)) (emphasis added).[92] Although the relators added "comparatively greater detail" based on their "inside knowledge," Ven-A-Care's original suit identified the "key highlights" of the alleged fraud, including the "particular pricing mechanism Baxter used for carrying out the alleged fraud, . . . the drugs involved . . . [, and] the time period during which the scheme" allegedly took place. Id. at 939-942. Thus, Ven-A-Care "provided enough specific information . . . to satisfy the first-to-file rule." Id. at 942. In keeping with the first-to-file provision's letter and spirit, the decision sidelines subsequent claims that offer little more than superfluous detail.

C.    With the Supreme Court on the Sidelines, the Circuit Courts Continue to Refine Their Standards for Satisfying Rule 9(b) in FCA Cases

As we reported in our Mid-Year False Claims Act Update, the circuits have split over the level of detail a plaintiff must plead in an FCA case to satisfy Rule 9(b)'s "particularity" requirement, which provides that a "party must state with particularity the circumstances constituting fraud." (Emphasis added). In March 2014, the Supreme Court declined to resolve the split, see 81 U.S.L.W. 3650 (U.S. Mar. 31, 2014) (No. 12-1349), even after it initially signaled that it was prepared to hear the case. Without the benefit of the Supreme Court's guidance, the federal appeals courts continued to issue opinions with disparate applications of Rule 9(b) during the second half of 2014.

The Eighth Circuit, for example, continued its evolution towards a relaxed, plaintiff-friendly standard for meeting Rule 9(b)'s requirements, thereby aligning itself more closely with the First, Fifth, Seventh, and Ninth Circuits. In United States ex rel. Thayer v. Planned Parenthood of the Heartland, the Eighth Circuit explained that a plaintiff does not need to plead "representative examples" of false claims if he or she can otherwise plead the "particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted." 765 F.3d 914, 918 (8th Cir. 2014). The relator there, a former Planned Parenthood center manager, alleged a litany of FCA violations. Id. at 919. The court held that the complaint offered sufficient indicia of reliability for claims based on the relator's "personal knowledge," even without representative examples of false claims. But the court concluded that certain other claims did not meet Rule 9(b)'s particularity standard because the relator lacked personal knowledge about the misconduct (or other reliable indicia that claims were actually submitted). Id.

Meanwhile, the Eleventh Circuit added to its growing body of case law on the required pleading standard for FCA claims. Along with the Fourth, Sixth, and Eighth Circuits, the Eleventh Circuit has historically applied a more stringent standard by requiring that a plaintiff plead sufficient facts to show that specific false claims were submitted. In United States ex rel. Mastej v. Health Management Associates, Inc., --- F. App'x ---, 2014 WL 5471925 (11th Cir. Oct. 30, 2014), however, the Eleventh Circuit noted that representative claims are "not the only way a relator can establish 'some indicia of reliability . . . to support the allegation of an actual false claim for payment being made to the Government.'" Id. at *11 (citations omitted) (emphasis in original). Because the relator in the case had "personal knowledge gained in his role[]" as a senior officer with the company, the Eleventh Circuit found "sufficient indications of reliability that actual claims were submitted" rather than allegations based "on rumors or mere conjecture." Id. at *12.

Both cases indicate that insiders with personal knowledge may have an easier time meeting Rule 9(b)'s pleading standard even if they cannot point to specific, representative false claims. But they must still plead some reliable details of the billing process that can provide an indication that false claims actually were submitted. As the relator found in Thayer, at least in the Eighth Circuit, meeting this standard is not a given. And a recent Seventh Circuit decision underscores that in certain circuits, an FCA plaintiff must plead even more detail.

In United States ex rel. Grenadyor v. Ukrainian Village Pharmacy, Inc., 772 F.3d 1102, 1104 (7th Cir. 2014), the plaintiff claimed that a pharmacy defrauded the government by (1) paying kickbacks to customers in the form of gifts of caviar (and other products) and waived copayments and (2) submitting claims to the government for prescriptions that patients never ordered and never picked up after they were filled. Id. at 1104 But the Seventh Circuit held that the pharmacy's promises to comply with federal anti-kickback regulations on a Medicare Enrollment Application could not support a FCA violation because the complaint lacked any "non-conclusory allegations that the pharmacy had decided to pay kickbacks at the time it" signed the application. Id. at 1106. Judge Posner reasoned that any later decision to pay kickbacks could not retroactively convert the application promises into false statements. Id.

Without deciding whether the Seventh Circuit would even recognize an implied certification theory, the Grenadyor court also held that the complaint could not support such a theory because it failed to provide specifics about customers and the alleged kickbacks they received. Id. at 1107. To state a claim under the FCA, the plaintiff necessarily "would have had to allege either that the pharmacy submitted a claim to Medicare (or Medicaid) on behalf of a specific patient who had received a kickback, or at least name a Medicare patient who had received a kickback." Id. . And on relator's other theory, even though the complaint purported to give two examples where "the pharmacy failed to reverse [] charges for [] pills" that a customer never picked up, id. at 11085 (internal quotation marks omitted), the court held that the examples were "insufficient because there is nothing to indicate when [the pharmacy manager] directed that the charges not be reversed, whether [the plaintiff] was present, and if not how he learned that the charges were never reversed." Id. . In other words, the relator's insider status in Grenadyor subjected him to particularly intense scrutiny of Rule 9(b)'s standards because he had not pled details that such an insider would be expected to know.

In a recent decision applying Rule 9(b), the Fifth Circuit reiterated that a plaintiff does not need to plead knowledge or intent with particularity. United States v. Bollinger Shipyards, Inc., No. 13-31301, 2014 WL 7335007, at *4 (5th Cir. Dec. 23, 2014). Rule 9(b) provides that "[m]alice, intent, knowledge, and other conditions of a person's mind may be alleged generally." Fed. R. Civ. P. 9(b). In Bollinger, a shipbuilder allegedly manipulated data it submitted to the government to meet structural integrity requirements for Coast Guard ships that it was retrofitting. 2014 WL 7335007, at *1-2. The government's complaint alleged that Bollinger's use of false inputs in calculations made it reasonable to infer that Bollinger acted knowingly "to avoid further Coast Guard scrutiny . . . of the vessel's structural integrity." Id. at *4 (internal quotation marks omitted). Although the district court concluded that Rule 9(b) required greater detail to adequately plead the knowledge element, the Fifth Circuit held that the government's allegation was sufficient. Id.

These recent decisions do not significantly alter the landscape for FCA litigants fighting over the Rule 9(b) standard; the deep circuit split persists without relief in sight. Defendants faced with an FCA complaint would be wise to consider carefully the specific precedent in their circuit.

D.    Government Knowledge of an Alleged Fraud as a Defense to FCA Liability

Several federal appellate courts have held that evidence showing that the government knew the facts underlying an alleged false claim can negate FCA liability. See, e.g., United States ex rel. Ubl v. IIF Data Solutions, 650 F.3d 445, 452-53 (4th Cir. 2011) ("[T]he government's knowledge of the facts underlying an allegedly false record or statement can negate the scienter required for an FCA violation . . . .") (internal citations omitted); United States ex rel. Hagood v. Sonoma Cty. Water Agency, 929 F.2d 1416, 1421 (9th Cir. 1991). Recent cases out of the Ninth Circuit and Federal Circuit help clarify when that defense may succeed.

The Ninth Circuit considered the defense anew in United States ex rel. Gonzalez v. Planned Parenthood of Los Angeles, 759 F.3d 1112 (9th Cir. 2014). There, the relator alleged that Planned Parenthood was required to bill California's Medicaid program for contraceptives "at cost" but nevertheless charged the program the higher "usual and customary" price. Id. at 1113. When the California Department of Healthcare Services ("CDHS") inquired about the billing, Planned Parenthood's executive director replied candidly: the "clinics are billing at the usual and customary rate, not at acquisition costs." Id. at 1114 (internal quotation marks omitted). "[T]here was no response" from the State, let alone any "advice to the contrary or objection." Id. The issue resurfaced only when the State audited Planned Parenthood several years later. Id. At that time, the State recognized the ambiguity in the meaning of key terms in the billing manual, and therefore told Planned Parenthood that CDHS would not seek reimbursement. Id. Under these circumstances, the Ninth Circuit held that the complaint's allegations, even in the light most favorable to the relator, could not support a plausible claim that Planned Parenthood "knowingly" made false claims. Id. at 1115"Stated simply," the court explained, "even if bills sent by Planned Parenthood were false in portraying its costs, one cannot plausibly conclude that there was knowing falsity on the part of Planned Parenthood given the explicit statements addressing this subject made by the State . . . through CDHS and the State's silence after being told what procedures Planned Parenthood was following." Id. at 1116. Simply put, if the government knows and does nothing--and the defendant knows as much--the FCA may not impose liability.

The Federal Circuit, on the other hand, recently rejected this defense in a case where the extent of the government's knowledge allegedly was less clear. In Veridyne Corp. v. United States, the relator alleged that a government contractor submitted an artificially low bid ($2,999,949.00) to avoid the $3 million threshold that would trigger competitive bidding for a contract extension. 758 F.3d 1371, 1374-75 (Fed. Cir. 2014). The contractor allegedly knew that the "services to be provided under the extension would cost far in excess of" its bid--and that provided to be the case; the Small Business Administration ultimately paid the contractor more than $31 million. Id. at 1374-75. At least some officials at the Maritime Administration of the Department of Transportation (the governmental entity that evaluated the proposal) seemed to know that the bid price was "merely a pretext to get around having to award the new contract subject to competition." Id. at 1375 (internal quotation marks omitted). Accordingly, the contractor argued that the Maritime Administration officials' knowledge (and apparent complicity) negated FCA liability. Id. at 1379. But the Federal Circuit focused instead on whether the Small Business Administration knew about the false claims. Because the SBA was the official contracting agency--and it did not know about the alleged misconduct--the court concluded that the entire contract was "infected with fraud." Id. .

Compared to the Ninth Circuit's opinion and prior cases, the Federal Circuit's decision suggests that the knowledge of one arm of the government may not necessarily negate FCA liability if it is not particularized to the agency that receives the false claims at issue.  But there is case law going the other way on this issue.

Meanwhile, in Bollinger, the Fifth Circuit held that the "[t]he government knowledge defense is not appropriate at the motion to dismiss stage, which requires us to draw all inferences in favor of the [plaintiff]." 2014 WL 7335007 at *7.  According to the Bollinger court, the defense "is more proper at the summary judgment or trial stage as a means by which the defendant can rebut the government's assertion of the knowing presentation of a false claim." 2014 WL 7335007 at *7 (internal citations and quotation marks omitted). In so holding, the Bollinger court departed from the Ninth Circuit's Gonzalez decision, which affirmed a district court's dismissal at the pleading stage. Despite this apparent split, the Fifth Circuit suggested that its holding was in step with "[a]ll circuit court authorities." Id. (citing United States ex rel. Burlbaw v. Orenduff, 548 F.3d 931, 952 (10th Cir. 2008); United States ex rel. Kreindler & Kreindler v. United Techs. Corp., 985 F.2d 1148, 1156 (2d Cir. 1993); Hagood, 929 F.2d at 1421).

Despite Bollinger, other circuits may nevertheless conclude that defendants with a strong defense based on government knowledge, like the California Planned Parenthood center in Gonzalez, need not bide their time until summary judgment if the complaint's allegations establish the government's knowledge or if it may be ascertained through sources subject to judicial notice.

E.    The Seventh Circuit Confirms the Limited Application of the Worthless Services Theory

One of the government and relators' aggressive interpretations of the FCA is the "worthless services" theory, which underpins claims brought against a defendant that the government reimbursed for providing goods or services allegedly so deficient that they are effectively worth nothing to the recipient. See, e.g., United States ex rel. Mikes v. Straus, 274 F.3d 687, 703 (2d Cir. 2001); United States ex rel. Lee v. SmithKline Beecham, Inc., 245 F.3d 1048, 1053 (9th Cir. 2001). Some plaintiffs seek to employ this theory to support FCA allegations even where the services might be flawed, but still provided value to the recipient paying for them. The Seventh Circuit's recent Momence Meadows decision reiterated that the "worthless services" doctrine, however, can support liability only in the most extreme fact patterns. 764 F.3d 699 (7th Cir. 2014).

In Momence Meadows,[93] two former Momence nurses claimed that the nursing home knowingly submitted false claims to Medicare and Medicaid by seeking reimbursement for treatment that did not meet applicable standards of care. See 764 F.3d at 702. A jury sided with the relators; on appeal, Momence Meadows contended that the relators' claims failed as a matter of law. Id. In assessing the relators' "worthless services" theory, the Seventh Circuit held that it is not enough to show that the defendant's services are merely "worth less" or "'diminished [in] value.'" Id. at 710.  Rather, the defendant's services must be "so deficient that for all practical purposes it is the equivalent of no performance at all." Id. (quoting Mikes, 274 F.3d at 703). The evidence presented at trial, however, did not support such a finding. As the Seventh Circuit observed, it would be "absurd" to suggest otherwise, given that the government surveyed the defendant's facilities and allowed the defendant to continue providing care. Id. Notably, the court added that because of the facts of the case it was unnecessary to reach the question of whether a separate "worthless services" theory of liability is viable in the Seventh Circuit.

The Momence Meadows court also rejected the relators' false certification theories. Id. at 715The court declined to clarify whether an "implied certification" theory was viable in the Seventh Circuit because relators waived the issue by failing to argue to the jury that alleged implied certifications were conditions of payment. Id. at 711. Even if the relators had preserved the issue, the court was skeptical of their argument that compliance with regulations was a condition of payment because failure to comply could result in termination from the programs. Countenancing such a theory would lead to "absurd" results: "[E]ven a single regulatory violation would be a condition of 'any and all' payments subsequently received by the facility inasmuch as the regulators could terminate the facility for practically any deficiency." Id. at 712. Further, because the relators "failed to offer evidence establishing that even a roughly approximate number of forms contained false certifications," the Seventh Circuit concluded that the evidence did not support an express false certification theory. Id. at 714 (emphasis in original).

F.    The Circuit Courts Offer Several Defendant-Friendly Opinions Relating to the FCA's Falsity and Scienter Elements

Two other recent federal appellate decisions may provide lines of defense for defendants facing aggressive relators.

First, in a short opinion by Judge Easterbrook, the Seventh Circuit shot down a relator's attempt to use the FCA to police adherence to policies and procedures. See United States ex rel. Hill v. City of Chicago, 772 F.3d 455 (7th Cir. 2014). There, the City certified in applications for federal grants that "it had a[n] [Equal Employment Opportunity] plan and that it would implement a[n] [Equal Employment Opportunity] program." Id. at 455 (emphasis in original). A relator sued, alleging that the City did not abide by the terms of its Equal Employment Opportunity Plan. Id. The Seventh Circuit held that the City was not required to adhere to the letter of its own plan; in fact, "some flexibility is essential when administrators encounter circumstances that plan-writers did not anticipate." Id. at 456. Because there was "substantial agreement between the written plan and what the City was doing in fact," Judge Easterbrook reasoned, "no federal agency has parted with money under false pretenses." Id. Further, "[t]he record does not establish that the people in the Police Department and other bureaus who wrote grant applications and attached the City's plan knew that the Department of Human Resources was implementing a program different from the plan." Id.. "[W]ithout knowledge of falsity there cannot be a knowingly false claim," let alone FCA liability. Id.

Second, contractors who deal with suppliers, and especially those subject to the country-of-origin requirements of the Trade Agreements Act ("TAA"), will welcome a recent D.C. Circuit ruling. United States ex rel. Folliard v. Gov't Acquisitions, Inc., 764 F.3d 19 (D.C. Cir. 2014). There, the relator alleged that a contractor falsely certified to the General Services Administration that it was providing products compliant with the TAA, which forbids the U.S. government from buying goods that originate from certain designated countries. Id. at 21The D.C. Circuit held that contractors may reasonably rely on their suppliers' certifications when making claims to the government. Id. at 31. The court concluded that the contractor did not act knowingly for purposes of FCA liability when it relied on "express[]" certifications regarding country of origin from the "largest technology products distributor." Id. at 29-30. In fact, even the government had "implicitly approved" the contractor's reliance on the distributor's certification. Id. at 30.

These two cases reaffirm that the FCA's falsity and scienter elements are not easily overcome. Although the principles underlying both opinions are not new, these cases should be welcome additions to an FCA defendant's arsenal.

G.    The First Circuit Weighs in on Tax Deductions of FCA Damages Payments

A recent decision by the First Circuit potentially broadens the opportunity for defendants to obtain tax deductions for damages paid under the FCA. Under the Internal Revenue Code, a civil defendant may not claim a deduction "for any fine or similar penalty paid to a government for the violation of any law." 26 U.S.C. § 162(f). Compensatory damages paid to a government, however, are not fines or penalties. 26 C.F.R. § 1.162-21(b). Determining the extent of compensatory damages in an FCA case can be particularly difficult given the dual nature of treble damages. In Talley Industries Inc. v. Comm'r, 116 F.3d 382, 387-88 (9th Cir. 1997), the Ninth Circuit held that the treatment of any settlement sum over single damages would depend on the characterization and purpose of that portion--namely, whether the parties intended to compensate or to punish and deter. When evidence of intent is lacking, the taxpayer "suffers the consequence" and may not claim the deduction. Id.

In Fresenius Med. Care Holdings, Inc. v. United States, the government and Fresenius, a major operator of dialysis centers, disputed the deductibility of FCA civil settlement payments above the single damages amount. 763 F.3d 64, 66-67 (1st Cir. 2014). According to the government, these sums were nondeductible under Talley unless the parties manifested a different intent through a tax characterization agreement. Id. at 69-70. But the district court directed the jury, in the absence of any agreement, to measure deductibility by determining the amount necessary to render the government whole. Id. at 69. "Compel[led] [] to part company" with the Ninth Circuit, the First Circuit affirmed, holding that courts may consider the "economic realities" of the particular transaction. Id. at 66. Focusing exclusively on whether the parties signed a tax characterization agreement "would give the government a whip hand of unprecedented ferocity" and would enable it to "defeat deductibility by the simple expedient of refusing to agree--no matter how arbitrarily--to the characterization of a payment." Id. at 70. The court was careful to clarify, however, that the settling parties' intent is still relevant, and that courts should honor specific agreements. Id.

The extent of the divide between Fresenius and Talley is unclear. The Fresenius court suggested that Talley was distinguishable on its facts, id. at 71, but Fresenius may nevertheless mark the beginning of a circuit rift. In any case, FCA defendants should keep Fresenius in mind when negotiating settlements.

H.    The Fifth Circuit Clarifies That a Mere Regulatory Interest in a Program Does Not Amount to Providing Federal Funds

Potential FCA liability attaches to claims for payment where "the United States Government . . . provides or has provided any portion of the money or property requested or demanded." 31 U.S.C. § 3729(b)(2)(A)(ii)(I) (emphasis added). The Fifth Circuit recently clarified that mere regulatory interest in a program is not sufficient to invoke the FCA. Rather, the government must have a traceable financial stake in the program's losses due to a fraud. 

In United States ex rel. Shupe v. Cisco Systems, Inc., telecommunication companies allegedly violated the FCA in connection with contracts to install and operate communications networks for school districts and libraries. 759 F.3d 379, 381 (5th Cir. 2014). Partial funding for these networks came through a program administered by an independent, not-for-profit corporation charged by Congress and the Federal Communications Commission ("FCC") with collecting mandatory contributions from private telecommunication providers and distributing some of those funds through price discounts. Id. at 381-82. The Fifth Circuit explained that the government "provides any portion" of requested money when U.S. Treasury dollars flow to the allegedly defrauded entity or the defendant submits alleged false claims to a government entity. Id. at 383. Rejecting the government's proposed control-based test, the court found no government financial stake in the fund's alleged fraudulent losses; indeed, the money was "untraceable" to the U.S. Treasury. Id. at 385. The court further explained that government entities are made so by their statutes, not by government supervision, and "recovery for an unquantifiable regulatory interest falls outside the scope of FCA protection." Id. Although the FCC maintained regulatory supervision over the program, the court concluded that Congress intentionally externalized the cost of administering the program to a private entity, as evidenced by the program's independent structure. Id. at 387-88.

III.    Legislative and Administrative Activity

Although the second half of 2014 saw no major legislative overhauls to the federal FCA, Congress signaled potential openness to reform that would begin to offset the expansion of the statute's reach in recent years--a process that could commence as soon as during the 114th U.S. Congress in 2015. The past six months were also marked by the promulgation of new rules by the Centers for Medicare and Medicaid Services ("CMS"), novel FCA applications of existing CMS rules, and certain notable state FCA legislative actions, including in response to state judicial decisions.

A.    Federal Activity

Congress took no new major FCA legislative action in the last six months of 2014, nor did it take any notable actions on previously introduced bills, such as the Medicaid Physician Self-Referral Act (H.R. 4676) introduced in May 2014, or the Fairness in Health Care Claims, Guidance, and Investigations Act (H.R. 2931) introduced in 2013, both discussed in our 2014 Mid-Year Update. However, in contrast to the politically divided 113th U.S. Congress, the Republican-dominated 114th U.S. Congress set to convene January 3, 2015, is primed for a renewed increase in FCA-related legislative activity.

  • House Hearing on Oversight of the False Claims Act: The House Judiciary Committee's Subcommittee on the Constitution and Civil Justice held a July 30 hearing exploring possible reforms to the FCA to counterbalance the recent trend of legislation expanding the scope of potential liability under the FCA, such as the 2010 PPACA amendments to the statute's public disclosure bar.[94] The House Subcommittee heard testimony from physician defendants, business groups, and Senator Charles Grassley (R-IA), an author of the 1986 update to the federal FCA that included qui tam provisions, both for and against proposed amendments that would help curb the use of the FCA as a tool for enforcing contractual, regulatory, or statutory violations that are not expressly stated as conditions of payment, and that would incentivize companies to adopt gold-standard compliance programs in exchange for reduced penalties.[95] Although Congress' willingness to explore steps to reign in the statute's misuse as a vehicle for policing regulatory compliance is a positive development, no formal legislative fix has emerged, and companies can expect no relief for the time being.
  • CMS Open Payments Program: On November 13, 2014, CMS published final rules regarding the "Open Payments" program aimed at ensuring transparency in relationships between pharmaceutical and device manufacturers, hospitals, and physicians, which generally require certain "manufacturers and applicable group purchasing organizations (GPOs)" to report payments or transfers of value to "covered recipients and physician[s]."[96] The promulgated rules exempt the reporting of indirect payments or transfers of value where the manufacturer is "unaware of the identity of the covered recipient" during or briefly following the reporting period,[97] as well as any payments to an organization for continuing education events even where a manufacturer is aware of the physician recipient's identity, so long as the manufacturer does not "require, instruct, direct or otherwise cause" the event provider to render payment to an attendee.[98]  One month later, however, CMS issued apparently conflicting guidance with respect to continuing education events.[99]  In its December guidance, CMS stated that beginning in 2016, a manufacturer must report the payments if it "knows or finds out the identity of the physician attendees" within or shortly after the reporting period.[100] CMS has yet to respond to a request for clarification on its guidance, leaving the application of the rules to continuing education events in a state of regulatory uncertainty that may invite FCA claims.[101]
  • Medicare Overpayments for MAOs and PDPs: In addition, the final CMS rules regarding Medicare overpayments for Medicare Advantage organizations and Part D Participants discussed in our 2014 Mid-Year Update are already having an impact. On June 27, 2014, in what is one of the first "reverse" FCA cases under the CMS overpayment rules, the DOJ intervened in a qui tam case alleging that the health systems failed to return money constituting overpayments to the government within the 60-day timeframe under the PPACA.[102] The defendants' motion to dismiss for failure to state a claim is pending, and the court's ruling may provide framework for overpayment rule-related FCA actions in the future.[103]

B.    State Activity

As we predicted in our 2014 Mid-Year Update, state legislators--like their federal counterparts--introduced relatively little new FCA legislation following the expiration of federal financial incentives under the Deficit Reduction Act ("DRA") of 2005. The DRA was designed to prompt states to adopt false claims acts "at least as effective" as the federal FCA, but the financial incentive under the DRA is no longer available to the states.[104]

One notable exception to the otherwise quiet state legislative agenda was a New Jersey Senate Bill (S-2645) introduced December 11, 2014, and referred to the Senate Judiciary Committee. If enacted into law, the bill would allow the state's FCA statute, which became effective March 13, 2008,[105] to be applied retroactively in some circumstances. Specifically, S‑2645 would allow an action to be brought under the state's FCA where the false claims were submitted before the state FCA's March 2008 effective date, so long as they are otherwise within the statute of limitations.[106] In a statement, the bill's sponsor noted that the bill is an attempt to circumvent a 2011 Appellate Division ruling[107] preventing the state's FCA statute from being retroactively applied.[108] S-2645 marks the latest round of legislative bodies attempting to circumvent court rulings perceived as undesirable, as we have observed in past updates.

Earlier this year, we reported on the North Dakota legislature's concurrent resolution to study the use of qui tam actions in other states. That resolution directs the study's findings and recommendations to be presented to the 64th Legislative Assembly, which convenes in January 2015 and may spur new action in the first part of the New Year.[109]

In addition, on December 10, 2014, a South Carolina senator reintroduced a bill to enact the "South Carolina False Claims Act" (S.B. 223), which mirrors proposed legislation that state legislators have failed to pass in each of the past several years, as we have reported in past updates. That same day the bill was referred to the state Senate Judiciary Committee, which is set to consider S.B. 223 in 2015.

Since our last update, HHS OIG has determined under the DRA whether many, but not all, newly enacted or amended state FCA laws are at least as robust as the federal FCA:

  • Connecticut: On June 13, 2014, the Connecticut Legislature passed a bill expanding the reach of the Connecticut False Claims Act (CFCA) to false or fraudulent claims for payment or approval by all state-administered health and human services programs, rather than just any Department of Social Services' medical assistance program.[110] On August 22, 2014, HHS OIG concluded that the amended Connecticut False Claims Act is compliant with the DRA requirements.[111]
  • Indiana: In March 2014, Indiana legislators enacted the Medicaid False Claims and Whistleblower Protection Act, making certain procedural changes to the state's false claims statutes to remove inconsistencies and to comply with federal law.[112] On July 31, 2014, HHS OIG determined the Indiana Medicaid False Claims and Whistleblower Protection Act complies with DRA requirements.[113]
  • Virginia: On March 31, 2014 the Virginia Legislature enacted new whistleblower protections under the Fraud and Abuse Whistle Blower Protection Act, as well as minor amendments to the Virginia Fraud Against Taxpayers Act.[114] On July 31, 2014, HHS OIG concluded that, as amended, the Virginia Fraud Against Taxpayers Act is DRA compliant.[115]
  • Wyoming: As reported in our 2013 Year-End Alert, Wyoming enacted a state FCA statute, entitled the Wyoming Medicaid False Claims Act, intended to mirror its federal counterpart.[116] As of December 2014, HHS OIG has yet to announce any determination as to whether Wyoming's FCA complies with the DRA requirements.

In several of the states on which we reported in our 2014 Mid-Year Update, including Alabama, Michigan, New Mexico, and Pennsylvania, the proposed legislation to enact or amend existing false claims laws has been indefinitely postponed or remains in committee. In contrast to the slow pace of new legislation, state enforcement of existing FCA statutes was at record highs in 2014 and is resulting in new and as-yet untested theories of liability under state law.[117] We expect state legislative activity to pick up in 2015, in part in response to state court decisions defining the boundaries of existing state FCA statues that are sure to follow the boom in enforcement.[118]

IV.    Conclusion

Exactly five years ago, we remarked in these pages that 2009, which saw $2.4 billion in recoveries, was a "monster year for FCA enforcement."  Indeed, at the time that number represented the second highest annual recoveries in FCA history. Since then, not only has that "monster year" been exceeded annually, it has twice been more than doubled. In the post-FERA era of expanding legal liability, more numerous federal and state players in enforcement, and steadily increasing relator filings, perhaps the only thing truly remarkable about 2014's record total was where it came from. While recent years' new heights of recoveries have been propelled largely by massive pharmaceutical and other alleged health care fraud settlements, this year's record haul featured financial institution settlements most heavily. In 2014 the government continued, and in some ways expanded, its robust FCA activity in the traditional health care and defense/procurement sectors while simultaneously expanding its efforts in other areas. This year reinforced a principle that must be heeded now more than ever:  anywhere there are government funds, no matter how indirectly involved, vigorous FCA compliance efforts are critical to reducing the risk of landing in the government's ever-widening ambit of FCA enforcement, which is sure to continue thriving and growing in 2015. We will be watching closely and will return with further developments in our 2015 Mid-Year Update.


   [1]   Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, Remarks by Assistant Attorney General for the Criminal Division Leslie R. Caldwell at the Taxpayers Against Fraud Education Fund Conferences (Sept. 17, 2014), http://www.justice.gov/criminal/pr/speeches/2014/crm-speech-140917.html [hereinafter Caldwell Speech].

   [2]   See Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, Justice Department Recovers Nearly $6 Billion from False Claims Act Cases in Fiscal Year 2014 (Nov. 20, 2014), http://www.justice.gov/opa/pr/justice-department-recovers-nearly-6-billion-false-claims-act-cases-fiscal-year-2014 [hereinafter DOJ FY 2014 Recoveries Press Release].

   [3]   See DOJ FY 2014 Recoveries Press Release, supra note 2.

   [4]   See DOJ FY 2014 Recoveries Press Release, supra note 2.

   [5]   See DOJ FY 2014 Recoveries Press Release, supra note 2.

   [6]   See Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, DaVita to Pay $350 Million to Resolve Allegations of Illegal Kickbacks (Oct. 22, 2014), http://www.justice.gov/opa/pr/davita-pay-350-million-resolve-allegations-illegal-kickbacks; see also Fraud Statistics, U.S. Dep't of Justice (Nov. 20, 2014), http://www.justice.gov/civil/pages/attachments/2014/11/21/fcastats.pdf [hereinafter 2014 Fraud Statistics]. 

   [7]   See Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, United States Files Complaint in False Claims Act Lawsuit Alleging Defense Contractors Knowingly Overcharged the Navy on Aircraft Maintenance Contract (Oct. 16, 2014), http://www.justice.gov/opa/pr/united-states-files-complaint-false-claims-act-lawsuit-alleging-defense-contractors-knowingly; Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, United States Files False Claims Act Lawsuit Against Las Vegas Hospice and Related Entities for Billing Medicare and Medicaid for Ineligible Patients (Nov. 25, 2014), http://www.justice.gov/opa/pr/united-states-files-false-claims-act-lawsuit-against-las-vegas-hospice-and-related-entities; Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, United States Files Suit Against Air Ideal and its Owner for Allegedly Submitting False Claims Under Historically Underutilized Business Zone Program (Dec. 1, 2014), http://www.justice.gov/opa/pr/united-states-files-suit-against-air-ideal-and-its-owner-allegedly-submitting-false-claims; Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, United States Files Suit Against Omnicare, Inc. for Accepting Kickbacks from Drug Manufacturer to Promote an Anti-Epileptic Drug in Nursing Homes (Dec. 22, 2014), http://www.justice.gov/opa/pr/united-states-files-suit-against-omnicare-inc-accepting-kickbacks-drug-manufacturer-promote.

   [8]   See DOJ FY 2014 Recoveries Press Release, supra note 2.

   [9]   See DOJ FY 2014 Recoveries Press Release, supra note 2.

  [10]   See 2014 Fraud Statistics, supra note 6.

  [11]   See Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, Acting Assistant Attorney General Stuart F. Delery Speaks at the American Bar Association's Ninth National Institute on the Civil False Claims Act and Qui Tam Enforcement (June 7, 2012), http://www.justice.gov/iso/opa/civil/speeches/2012/civ-speech-1206071.html. Since 2001, the government has intervened in 23% of qui tam cases (1,539 out of 6,693 cases); see also 2014 Fraud Statistics, supra note 6. 

  [12]   2014 Fraud Statistics, supra note 6.

  [13]   2014 Fraud Statistics, supra note 6.

  [14]   Caldwell Speech, supra note 1.

  [15]   Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, Assistant Attorney General Stuart Delery Delivers Remarks at the American Bar Association's 10th National Institute on the Civil False Claims Act and Qui Tam Enforcement (June 5, 2014), http://www.justice.gov/iso/opa/civil/speeches/2014/civ-speech-140605.html

  [16]   See Press Release, U.S. Attorney's Office, S. Dist. of N.Y., U.S. Dep't of Justice, Manhattan U.S. Attorney Settles Civil Fraud Claims Against HSBC Bank For Failure To Monitor Fees Submitted For Foreclosure-Related Services (July 1, 2014), http://www.justice.gov/usao/nys/pressreleases/July14/HSBCSettlementPR.php.

  [17]   See Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, Alabama Hospital System and Physicians Group Agree to Pay $24.5 Million to Settle Lawsuit Alleging False Claims for Illegal Medicare Referrals (July 21, 2014), http://www.justice.gov/opa/pr/alabama-hospital-system-and-physician-group-agree-pay-245-million-settle-lawsuit-alleging.  

  [18]   See Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, $80 Million Judgment Entered Against BNP Paribas for False Claims to the U.S. Department of Agriculture (July 24, 2014), http://www.justice.gov/opa/pr/80-million-judgment-entered-against-bnp-paribas-false-claims-us-department-agriculture.

  [19]   See Matson Navigation Company to Pay a Settlement of $9.95 Million to U.S. Government for Improperly Billing the U.S. Department of Defense for Ocean Fuel Surcharges; Whistleblower to Receive $2.5 Million, Nat'l Law Rev. (July 30, 2014), http://www.natlawreview.com/article/matson-navigation-company-to-pay-settlement-995-million-to-us-government-improperly-; see also Horizon Lines SEC Form 10-Q, Ex-10.2 (June 22, 2014), http://www.sec.gov/Archives/edgar/data/1302707/000119312514285823/d748295dex102.htm

  [20]   See Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, Hewlett-Packard Company Agrees to Pay $32.5 Million for Alleged Overbilling of the U.S. Postal Service (August 1, 2014), http://www.justice.gov/opa/pr/hewlett-packard-company-agrees-pay-325-million-alleged-overbilling-us-postal-service.

  [21]   See Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, Community Health Systems Inc. to Pay $98.15 Million to Resolve False Claims Allegations (August 4, 2014), http://www.justice.gov/opa/pr/community-health-systems-inc-pay-9815-million-resolve-false-claims-act-allegations.

  [22]   See Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, McKesson Corp. to Pay $18 Million to Resolve False Claims Allegations Related to Shipping Services Provided Under Centers for Disease Control Vaccine Distribution Contract (August 8, 2014), http://www.justice.gov/opa/pr/mckesson-corp-pay-18-million-resolve-false-claims-allegations-related-shipping-services/.

  [23]   See Press Release, U.S. Attorney's Office, Dist. of Ariz., U.S. Dep't of Justice, Carondelet Health Network to Pay $35 Million to Resolve False Claims Allegations Involving St. Joseph's and St. Mary's Hospitals in Tucson (August 18, 2014), http://www.justice.gov/usao/az/press_releases/2014/PR_08182014_Carondelet.html.

  [24]   See Daniel Wilson, Cancer Center Fraudster Pays $5.7M to End FCA Suit, Law360 (August 18, 2014, 5:36 PM), http://www.law360.com/articles/568330/cancer-center-fraudster-pays-5-7m-to-end-fca-suit.

    [25]         See DOJ FY 2014 Recoveries Press Release, supra note 2.

  [26]   See Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, Bank of America to Pay $16.65 Billion in Historic Justice Department Settlement for Financial Fraud Leading up to and During the Financial Crisis (Aug. 21, 2014), http://www.justice.gov/opa/pr/bank-america-pay-1665-billion-historic-justice-department-settlement-financial-fraud-leading.

  [27]   See Igor Kossov, Smith & Nephew to Pay $8M to Settle FCA Suit with VA, Law360 (Sept. 3, 2014, 6:28 PM), http://www.law360.com/articles/573721/smith-nephew-to-pay-8m-to-settle-fca-suit-with-va?article_related_content=1.

  [28]   See Khadijah M. Britton, Battery Cos. to Pay $5.5M to Settle DOD Fraud Claims, Law360 (Sept. 17, 2014, 2:33 PM), http://www.law360.com/articles/577961/battery-cos-to-pay-5-5m-to-settle-dod-fraud-claims.

  [29]   See Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, Shire Pharmaceuticals LLC to Pay $56.5 Million to Resolve False Claims Act Allegations Relating to Drug Marketing and Promotion Practices (Sept. 24, 2014), http://www.justice.gov/opa/pr/shire-pharmaceuticals-llc-pay-565-million-resolve-false-claims-act-allegations-relating-drug.

  [30]   See Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, Caremark Will Pay $6 Million to Resolve False Claims Act Allegations (Sept. 26, 2014), http://www.justice.gov/opa/pr/caremark-will-pay-6-million-resolve-false-claims-act-allegations.

  [31]   See Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, Defense Contractor Agrees to Pay $13.7 Million to Settle Allegations of Overbilling (Oct. 7, 2014), http://www.justice.gov/opa/pr/defense-contractor-agrees-pay-137-million-settle-allegations-overbilling.

  [32]   See Press Release, U.S. Attorney's Office, S. Dist. of N.Y., U.S. Dep't of Justice, Manhattan U.S. Attorney Settles Civil Fraud Claims Against Caremed Pharmaceutical Services for Engaging in Fraudulent Conduct (Oct. 9, 2014), http://www.justice.gov/usao/nys/pressreleases/October14/CareMedSettlementPR.php.

  [33]   See Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, Boeing Pays $23 Million to Resolve False Claims Act Allegations (Oct. 10, 2014), http://www.justice.gov/opa/pr/boeing-pays-23-million-resolve-false-claims-act-allegations.

  [34]   See Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, Extendicare Health Services, Inc. Agrees to Pay $38 Million to Settle False Claims Act Allegations Relating to the Provision of Substandard Nursing Care and Medically Unnecessary Rehabilitation Therapy (Oct. 10, 2014), http://www.justice.gov/opa/pr/extendicare-health-services-inc-agrees-pay-38-million-settle-false-claims-act-allegations.

  [35]   See Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, DaVita to Pay $350 Million to Resolve Allegations of Illegal Kickbacks (Oct. 22, 2014), http://www.justice.gov/opa/pr/davita-pay-350-million-resolve-allegations-illegal-kickbacks.

  [36]   See Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, First RF Corporation Agrees to Pay $10 Million to Resolve False Claims Act Allegations (Oct. 24, 2014), http://www.justice.gov/opa/pr/first-rf-corporation-agrees-pay-10-million-resolve-false-claims-act-allegations.

  [37]   See Press Release, U.S. Attorney's Office, S. Dist. of N.Y., U.S. Dep't of Justice, Manhattan U.S. Attorney Settles Civil Fraud Claims Against Columbia University and Affiliated Public Health Program for Submitting False Claims in Connection with Aids and HIV Treatment-Related Grants (Oct. 28, 2014), http://www.justice.gov/usao/nys/pressreleases/October14/ColumbiaICAPsettlementPR.php

  [38]   See Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, Biomet Companies to Pay over $6 Million to Resolve False Claims Act Allegations Concerning Bone Growth Simulators (Oct. 29, 2014), http://www.justice.gov/opa/pr/biomet-companies-pay-over-6-million-resolve-false-claims-act-allegations-concerning-bone

  [39]   See Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, Dignity Health Agrees to Pay $37 Million to Settle False Claims Act Allegations (Oct. 30, 2014), http://www.justice.gov/opa/pr/dignity-health-agrees-pay-37-million-settle-false-claims-act-allegations.

  [40]   See Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, Careall Companies Agree to Pay $25 Million to Settle False Claims Act Allegations (Nov. 12, 2014), http://www.justice.gov/opa/pr/careall-companies-agree-pay-25-million-settle-false-claims-act-allegations.

  [41]   See Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, Defense Contractor Pleads Guilty to Major Fraud in Provision of Supplies to U.S. Troops in Afghanistan (Dec. 8, 2014), http://www.justice.gov/opa/pr/defense-contractor-pleads-guilty-major-fraud-provision-supplies-us-troops-afghanistan.

  [42]   See Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, OtisMed Corporation and Former CEO Plead Guilty to Distributing FDA-Rejected Cutting Guides for Knee Replacement Surgeries, http://www.justice.gov/opa/pr/otismed-corporation-and-former-ceo-plead-guilty-distributing-fda-rejected-cutting-guides-knee.

  [43]   See Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, Iron Mountain Companies Pay $44.5 Million to Settle Alleged False Billings for Storing Government Documents and Data (Dec. 19, 2014), available at http://www.justice.gov/opa/pr/iron-mountain-companies-pay-445-million-settle-alleged-false-billings-storing-government.

  [44]   See Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, Defense Contractor Agrees to Pay $27.5 Million to Settle Overbilling Allegations (Dec. 19, 2014), available at http://www.justice.gov/opa/pr/defense-contractor-agrees-pay-275-million-settle-overbilling-allegations.

  [45]   See Press Release, Attorney General of Texas, Attorney General Abbott Recovers $19.5 Million for State of Texas, U.S. (Aug. 11, 2014), https://www.texasattorneygeneral.gov/oagnews/release.php?id=4814

  [46]   See Press Release, New York State Office of the Attorney General, A.G. Schneiderman Announces $1.56 Million Settlement With New Jersey Appliance Retailer For Failing To Pay New York Taxes (Aug. 22, 2014), http://www.ag.ny.gov/press-release/ag-schneiderman-announces-156-million-settlement-new-jersey-appliance-retailer-failing.

  [47]   See Press Release, Attorney General of Texas, Attorney General Abbott Recovers $39.75 Million for State of Texas, U.S. Medicaid Program (Oct. 16, 2014), https://www.texasattorneygeneral.gov/oagnews/release.php?id=4874.

  [48]   See Press Release, Office of the Attorney General State of Louisiana, Louisiana to Receive $2.9 Million From Shire Pharmaceuticals (Oct. 3, 2014), https://www.ag.state.la.us/Article.aspx?articleID=907&catID=2.

  [49]   See Greene, Kat, Lockheed Beats $400M Whistleblower Suit, Law360, (Mar. 27, 2014, 8:59 PM), http://www.law360.com/articles/522744/lockheed-beats-400m-underbidding-whistleblower-suit.

  [50]   See Westney, Andrew, Belgian Co. Hit With $101 Verdict in DOD False Claims Row, Law360 (Aug. 4, 2014, 2:04 PM), http://www.law360.com/articles/563684/belgian-co-hit-with-101m-verdict-in-dod-false-claims-row.

  [51]   See Britton, Khadijah M, Gov't Tries to Get Paid via Gosselin Successor Liability, Law360, (Nov. 4, 2014, 3:46 PM), http://www.law360.com/articles/593075/gov-t-tries-to-get-paid-via-gosselin-successor-liability.

  [52]   Ivory, Danielle and Kessler, Aaron M, Guardrail Maker Trinity Industries Liable for Fraud in Texas, New York Times, (Oct. 20, 2014), http://www.nytimes.com/2014/10/21/business/jury-says-trinity-industries-a-highway-guardrail-maker-defrauded-us.html?_r=0.

  [53]   Id.

  [54]   See Knaub, Kelly, Mistrial Declared in Trinity Guardrail Whistleblower Suit, Law360 (Jul. 21, 2014, 7:34 PM), http://www.law360.com/articles/559200/mistrial-declared-in-trinity-guardrail-whistleblower-suit.

  [55]   See Greene, Kat, JM Found Liable for Shoddy Pipes In FCA Suit, Law360 (Nov. 14, 2013, 10:34 PM), http://www.law360.com/articles/488961/jm-found-liable-for-shoddy-pipes-in-fca-suit.

  [56]   See Lowrey, Brandon, Verdict Narrowed Against J-M In FCA Suit Over Shoddy Pipes, Law360 (Dec. 18, 2014, 9:58 PM), http://www.law360.com/articles/606365/verdict-narrowed-against-j-m-in-fca-suit-over-shoddy-pipes.

  [57]   Hale, Nathan, Keiser University Says FCA Standards Not Met In $4B Suit, Law360 (July 28, 2014, 8:30 PM), http://www.law360.com/articles/561341/keiser-university-says-fca-standards-not-met-in-4b-suit.

  [58]   Hale, Nathan, Magistrate Suggests Slashing Attys' Fees in Keiser FCA Suit, Law360 (Dec. 15, 2014, 8:00 PM), http://www.law360.com/articles/604911/magistrate-suggests-slashing-attys-fees-in-keiser-fca-suit.

  [59]   Id.

  [60]   See DOJ FY 2014 Recoveries Press Release, supra note 2; see also 2014 Fraud Statistics, supra note 6.

  [61]   See DOJ FY 2014 Recoveries Press Release, supra note 2.

  [62]   See U.S. Dep't of Health & Human Services, Office of Inspector Gen., Semiannual Report to Congress (October 2013-March 2014), https://oig.hhs.gov/reports-and-publications/archives/semiannual/2014/SAR-S14-Web-Final.pdf.

  [63]   Id.

  [64]   See Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, DaVita to Pay $350 Million to Resolve Allegations of Illegal Kickbacks (Oct. 22, 2014), http://www.justice.gov/opa/pr/davita-pay-350-million-resolve-allegations-illegal-kickbacks

  [65]   See, e.g., Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, Johnson & Johnson to Pay More Than $2.2 Billion to Resolve Criminal and Civil Investigations (Nov. 4, 2014), http://www.justice.gov/opa/pr/johnson-johnson-pay-more-22-billion-resolve-criminal-and-civil-investigations; Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, Amedisys Home Health Companies Agree to Pay $150 Million to Resolve False Claims Act Allegations (Apr. 23, 2014), http://www.justice.gov/opa/pr/amedisys-home-health-companies-agree-pay-150-million-resolve-false-claims-act-allegations.

  [66]   See 42 U.S.C. § 1320a-7b; Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, Nation's Largest Nursing Home Pharmacy Company to Pay $124 Million to Settle Allegations Involving False Billings to Federal Health Care Programs (June 25, 2014), http://www.justice.gov/opa/pr/nation-s-largest-nursing-home-pharmacy-company-pay-124-million-settle-allegations-involving.

  [67]   See 42 U.S.C. § 1320a-7b(g).

  [68]   See 42 U.S.C. § 1395nn.

  [69]   Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, Florida Hospital System Agrees to Pay the Government $85 Million to Settle Allegations of Improper Financial Relationships with Referring Physicians (March 11, 2014), http://www.justice.gov/opa/pr/florida-hospital-system-agrees-pay-government-85-million-settle-allegations-improper.

  [70]   See DOJ FY 2014 Recoveries Press Release, supra note 2.

  [71]   See Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, Nation's Largest Nursing Home Pharmacy Company to Pay $124 Million to Settle Allegations Involving False Billings to Federal Health Care Programs (June 25, 2014), http://www.justice.gov/opa/pr/nation-s-largest-nursing-home-pharmacy-company-pay-124-million-settle-allegations-involving.

  [72]   See Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, Boston Scientific and Subsidiaries to Pay $30 Million for Guidant's Sale of Defective Heart Devices for Use in Medicare Patients (Oct. 17, 2014) http://www.justice.gov/opa/pr/boston-scientific-and-subsidiaries-pay-30-million-guidant-s-sale-defective-heart-devices-use.

  [73]   See Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, Amedisys Home Health Companies Agree to Pay $150 Million to Resolve False Claims Act Allegations (Apr. 23, 2014), http://www.justice.gov/opa/pr/amedisys-home-health-companies-agree-pay-150-million-resolve-false-claims-act-allegations.

  [74]   See Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, Kentucky Hospital Agrees to Pay Government $16.5 Million to Settle Allegations of Unnecessary Cardiac Procedures (Jan. 29, 2014) http://www.justice.gov/opa/pr/kentucky-hospital-agrees-pay-government-165-million-settle-allegations-unnecessary-cardiac; Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, King's Daughters Medical Center to Pay Nearly $41 Million to Resolve Allegations of False Billing for Unnecessary Cardiac Procedures and Kickbacks (May 28, 2014), http://www.justice.gov/opa/pr/king-s-daughters-medical-center-pay-nearly-41-million-resolve-allegations-false-billing.

  [75]   See DOJ FY 2014 Recoveries Press Release, supra note 2.

  [76]   See Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, Justice Department Recovers $3.8 Billion from False Claims Act Cases in Fiscal Year 2013 (Dec. 20, 2013), http://www.justice.gov/opa/pr/2013/December/13-civ-1352.html.

  [77]   See Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, Hewlett-Packard Company Agrees to Pay $32.5 Million for Alleged Overbilling of the U.S. Postal Service (Aug. 1, 2014), http://www.justice.gov/opa/pr/hewlett-packard-company-agrees-pay-325-million-alleged-overbilling-us-postal-service

  [78]   See Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, Boeing Pays $23 Million to Resolve False Claims Act Allegations (Oct. 10, 2014), http://www.justice.gov/opa/pr/boeing-pays-23-million-resolve-false-claims-act-allegations

  [79]   See Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, Sanborn Map Co. Pays $2.1 Million to Resolve Allegations of False Claims for Map Work Related to United States Military Convoy Routes in Iraq and Marine Corps Bases in United States (Feb. 7, 2014), http://www.justice.gov/opa/pr/sanborn-map-co-pays-21-million-resolve-allegations-false-claims-map-work-related-united.

  [80]   See Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, MPRI Inc. Agrees to Pay $3.2 Million for False Labor Charges on Contract to Support Army in Afghanistan (Feb. 12, 2014), http://www.justice.gov/opa/pr/mpri-inc-agrees-pay-32-million-false-labor-charges-contract-support-army-afghanistan.

  [81]   See Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, Defense Contractor Agrees to Pay $13.7 Million to Settle Allegations of Overbilling (Oct. 7, 2014), http://www.justice.gov/opa/pr/defense-contractor-agrees-pay-137-million-settle-allegations-overbilling; Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, Science Applications International Corporation Agrees to Pay $1.5 Million to Resolve Alleged False Claims Act Violations for Undisclosed Organizational Conflicts of Interest (Oct. 21, 2014), http://www.justice.gov/opa/pr/science-applications-international-corporation-agrees-pay-15-million-resolve-alleged-false; Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, First RF Corporation Agrees to Pay $10 Million to Resolve False Claims Act Allegations (Oct. 24, 2014), http://www.justice.gov/opa/pr/first-rf-corporation-agrees-pay-10-million-resolve-false-claims-act-allegations; Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, North Florida Shipyards to Pay $1 Million to Resolve False Claims Act Allegations (Oct. 29, 2014), http://www.justice.gov/opa/pr/north-florida-shipyards-pay-1-million-resolve-false-claims-allegations; Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, Sevenson Environmental Services Inc. Agrees to Pay $2.72 Million to Settle Claims of Alleged Bid-Rigging and Kickbacks (Nov. 17, 2014), http://www.justice.gov/opa/pr/sevenson-environmental-services-inc-agrees-pay-272-million-settle-claims-alleged-bid-rigging; Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, Defense Contractor Agrees to Pay $27.5 Million to Settle Overbilling Allegations (Dec. 19, 2014), http://www.justice.gov/opa/pr/defense-contractor-agrees-pay-275-million-settle-overbilling-allegations; Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, Iron Mountain Companies Pay $44.5 Million to Settled Alleged False Billings for Storing Government Documents and Data (Dec. 19, 2014), http://www.justice.gov/opa/pr/iron-mountain-companies-pay-445-million-settle-alleged-false-billings-storing-government; Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, Defense Contractor Pleads Guilty to Major Fraud in Provision of Supplies to U.S. Troops in Afghanistan (Dec. 8, 2014), http://www.justice.gov/opa/pr/defense-contractor-pleads-guilty-major-fraud-provision-supplies-us-troops-afghanistan.

  [82]   See DOJ FY 2014 Recoveries Press Release, supra note 2.

  [83]   See Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, JPMorgan Chase to Pay $614 Million for Submitting False Claims for FHA-insured and VA-guaranteed Mortgage Loans (Feb. 4, 2014), http://www.justice.gov/opa/pr/jpmorgan-chase-pay-614-million-submitting-false-claims-fha-insured-and-va-guaranteed-mortgage; Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, Federal Government and State Attorneys General Reach Nearly $1 Billion Agreement with SunTrust to Address Mortgage Loan Origination as Well as Servicing and Foreclosure Abuses (June 17, 2014), http://www.justice.gov/opa/pr/federal-government-and-state-attorneys-general-reach-nearly-1-billion-agreement-suntrust;  Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, U.S. Bank to Pay $200 Million to Resolve Alleged FHA Mortgage Lending Violations (June 30, 2014), http://www.justice.gov/opa/pr/us-bank-pay-200-million-resolve-alleged-fha-mortgage-lending-violations; Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, Bank of America to Pay $16.65 Billion in Historic Justice Department Settlement for Financial Fraud Leading up to and During the Financial Crisis (Aug. 21, 2014), http://www.justice.gov/opa/pr/bank-america-pay-1665-billion-historic-justice-department-settlement-financial-fraud-leading.

  [84]   See Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, Federal Government and State Attorneys General Reach Nearly $1 Billion Agreement with SunTrust to Address Mortgage Loan Origination as Well as Servicing and Foreclosure Abuses (June 17, 2014), http://www.justice.gov/opa/pr/federal-government-and-state-attorneys-general-reach-nearly-1-billion-agreement-suntrust; Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, Bank of America to Pay $16.65 Billion in Historic Justice Department Settlement for Financial Fraud Leading up to and During the Financial Crisis (Aug. 21, 2014), http://www.justice.gov/opa/pr/bank-america-pay-1665-billion-historic-justice-department-settlement-financial-fraud-leading.

  [85]   See Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, Attorney General Holder Remarks on Financial Fraud Prosecutions at NYU School of Law (Sept. 17, 2014), http://www.stopfraud.gov/iso/opa/stopfraud/ag-speech-140917.html

  [86]   See Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, JPMorgan Chase to Pay $614 Million for Submitting False Claims for FHA-insured and VA-guaranteed Mortgage Loans (Feb. 4, 2014), http://www.justice.gov/opa/pr/jpmorgan-chase-pay-614-million-submitting-false-claims-fha-insured-and-va-guaranteed-mortgage.

  [87]   See Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, Federal Government and State Attorneys General Reach Nearly $1 Billion Agreement with SunTrust to Address Mortgage Loan Origination as Well as Servicing and Foreclosure Abuses (June 17, 2014), http://www.justice.gov/opa/pr/federal-government-and-state-attorneys-general-reach-nearly-1-billion-agreement-suntrust; Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, U.S. Bank to Pay $200 Million to Resolve Alleged FHA Mortgage Lending Violations (June 30, 2014), http://www.justice.gov/opa/pr/us-bank-pay-200-million-resolve-alleged-fha-mortgage-lending-violations.

  [88]   See Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, Bank of America to Pay $16.65 Billion in Historic Justice Department Settlement for Financial Fraud Leading up to and During the Financial Crisis (Aug. 21, 2014), http://www.justice.gov/opa/pr/bank-america-pay-1665-billion-historic-justice-department-settlement-financial-fraud-leading.

  [89]   See Evan Weinberger, Banks Face Ongoing FCA Threat Despite Likely Dip In Fines, Law360 (Dec. 2, 2014, 6:01 PM), http://www.law360.com/articles/598882/banks-face-ongoing-fca-threat-despite-likely-dip-in-fines.

  [90]   See Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, $80 Million Judgment Entered Against BNP Paribas for False Claims to the U.S. Department of Agriculture (July 24, 2014), http://www.justice.gov/opa/pr/80-million-judgment-entered-against-bnp-paribas-false-claims-us-department-agriculture

  [91]   See Press Release, U.S. Attorney's Office, S.D N.Y., U.S. Dep't of Justice, Manhattan U.S. Attorney Settles Civil Fraud Claims Against HSBC Bank For Failure To Monitor Fees Submitted For Foreclosure-Related Services (July 1, 2014), http://www.justice.gov/usao/nys/pressreleases/July14/HSBCSettlementPR.php.

  [92]   The vast majority of the federal circuits have announced substantively similar tests. See United States ex rel. Shea v. Cellco P'ship, 748 F.3d 338, 341 (D.C. Cir. 2014) ("A second action is related if it incorporates the same material elements of fraud as the earlier-filed action. [T]wo complaints need not allege identical facts for the first-filed complaint to bar the later-filed complaint." (internal citations and quotation marks omitted)); United States ex rel. Carter v. Halliburton Co., 710 F.3d 171, 182 (4th Cir. 2013), cert. granted sub nom. Kellogg Brown & Root Servs., Inc. v. United States ex rel. Carter, 134 S. Ct. 2899 (2014) (adopting a version of the essential elements test, "as a matter of first impression," because "[w]e find our sister circuits' reasoning persuasive, and we join these circuits in adopting the 'material elements test.'"); United States ex rel. Chovanec v. Apria Healthcare Grp. Inc., 606 F.3d 361, 363-64 (7th Cir. 2010) (adopting the essential facts test; noting that "The other circuits that have addressed this subject understand the "material" or "essential" facts to be those on which the original relator is entitled to compensation if the suit prevails . . . [and [t]here's a good reason for that view."); United States ex rel. Branch Consultants v. Allstate Ins. Co., 560 F.3d 371, 378 (5th Cir. 2009); United States ex rel. Poteet v. Medtronic, Inc., 552 F.3d 503, 516 (6th Cir. 2009); United States ex rel. Grynberg v. Koch Gateway Pipeline Co., 390 F.3d 1276, 1279 (10th Cir. 2004) ("[S]o long as a subsequent complaint raises the same or a related claim based in significant measure on the core fact or general conduct relied upon in the first qui tam action, the § 3730(b)(5)'s first-to-file bar applies."); United States ex rel. Lujan v. Hughes Aircraft Co., 243 F. 3d 1181 (9th Cir. 2001) ("The Third Circuit, the only appellate court to discuss and apply § 3730(b)(5), rejected an identical facts test. We find the Third Circuit's reasoning persuasive."); United States ex rel. LaCorte v. SmithKline Beecham Clinical Labs., Inc., 149 F.3d 227, 232-33 (3d Cir. 1998).

  [93]   Gibson Dunn represented Momence Meadows on appeal.

  [94]   July 30, 2014 Hearing: Oversight of the False Claims Act Before the Subcomm. on the Const. and Civ. Justice, 113th Cong. (2014), http://judiciary.house.gov/index.cfm/2014/7/hearing (Last visited Dec. 17, 2014).

  [95]   Id.

  [96]   Revisions to Payment Policies Under the Physician Fee Schedule, 79 Fed. Reg. 67,548, 67,758 (Nov. 13, 2014).

  [97]   CMS Reports of Payments Rule, 42 C.F.R. § 403.904(i)(1).  

  [98]   See Revisions to Payment Policies Under the Physician Fee Schedule, 79 Fed. Reg. 67,760 (Nov. 13, 2014).

  [99]   See Jeff Overley, CMS Clouds Stance on Payments Exemption, Law360 (Dec. 16, 2014, 7:32 PM), http://www.law360.com/health/articles/605109.

[100]   Centers for Medicare & Medicaid Services, Law and Policy, CMS.gov (Last visited Jan. 6, 2014), http://www.cms.gov/OpenPayments/About/Law-and-Policy.html.

[101]   See CMS Clouds Stance on Payments Exemption, supra note 98.

[102]   See David S. Greenberg, Linda A. Baumann and Jason S. Madden, The DOJ Intervenes in 'Reverse False Claims Act' Case, Health Care Counsel Blog (Jul. 11, 2014), http://healthcarecounselblog.com/articles/doj-intervenes-reverse-false-claims-act-case; see also Complaint-in-Intervention of the United States of America, Kane v. Healthfirst, Inc. et al, No. 1:11-cv-02325-ER, Dkt. No. 20 (S.D.N.Y. June 27, 2014).

[103]   See David S. Greenberg, Linda A. Baumann and Jason S. Madden, Hospital System Responds in 'Reverse False Claims Act' Overpayment Suit, Health Care Counsel Blog (Oct. 22, 2014), http://healthcarecounselblog.com/articles/hospital-system-responds-reverse-false-claims-act-overpayment-suit.

[104]   See 2005 Federal Deficit Reduction Act ("DRA"), 42 U.S.C. § 1396h.

[105]   N.J. Stat. Ann. § 2A:32C-1 (West, Westlaw through 2014 2nd Reg. Sess.).

[106]   See S.B. 2645, 216 Leg., Reg. Sess. (N.J. 2014).

[107]   See State ex re Hayling v. Corr. Med. Servs., Inc., 28 A.3d 1246 (N.J. Super. Ct. App. Div. 2011).

[108]   See Joshua Alston, NJ Bill Would Apply False Claims Act Provisions Retroactively, Law360 (Dec. 12, 2014, 9:29 PM), http://www.law360.com/articles/604180/nj-bill-would-apply-false-claims-act-provisions-retroactively.

[109]   S. Con. Res. 4007, 63rd Legis. Assemb., Reg. Sess. (N.D. 2013).

[110]   H.B. 5597, Conn. Gen. Assemb., Feb. Sess. (Conn. 2014), enacted by 2014 Conn. Legis. Serv. Pub. Act 14-217, amending the Connecticut False Claims Act, Pub. Act 217, §§ 1- 18 and §257 (West, Westlaw through 2014 Reg. Sess.). 

[111]   See Letter from Daniel R. Levinson, Inspector Gen., U.S. Dep't of Health & Human Servs., to George C. Jepsen, Att'y Gen. of Conn. (Aug. 22, 2014), http://oig.hhs.gov/fraud/docs/falseclaimsact/Connecticut.pdf.

[112]   S.B. 406, 118th Gen. Assemb., 2nd Reg. Sess. (Ind. 2014); 2014 Ind. Leg. Serv. Pub. Law 109-2014, amending the Indiana Medicaid False Claims and Whistleblower Protection Act, Ind. Code Ann. §§ 5-11-5.7-1to 5-11-5.7-18 (West, Westlaw through 2014 2nd Reg. Sess.).

[113]   See Letter from Daniel R. Levinson, Inspector Gen., U.S. Dep't of Health & Human Servs., to Matthew Whitmire, Dir., Medicaid Fraud Control Unit, Ind. Att'y Gen. Office (Jul. 31, 2014), http://oig.hhs.gov/fraud/docs/falseclaimsact/Indiana.pdf.

[114]   H.B. 439, 2014 Gen. Assemb., Reg. Sess. (Va. 2014); 2014 Va. Laws Ch. 403, amending the Virginia Fraud Against Taxpayers Act, Va. Code Ann. §§ 8.01-216.1 to 8.01-216.19 (West, Westlaw through 2014 Reg. Sess.).

[115]   See Letter from Daniel R. Levinson, Inspector Gen., U.S. Dep't of Health & Human Servs., to Randall L. Clouse, Dir., Medicaid Fraud Control Unit, Va. Office of the Att'y Gen. (Jul. 31, 2014), http://oig.hhs.gov/fraud/docs/falseclaimsact/Virginia.pdf

[116]   2013 Wyo. Laws Ch. 118, creating the Wyoming Medicaid False Claims Act, Wyo. Stat. Ann. §§ 42-4-301 to -306 (West 2013).

[117]   See Merle DeLancey, State False Claims Act Enforcement Explodes In 2014, Law360 (May 29, 2014, 7:56 PM), http://www.law360.com/articles/542555/state-false-claims-act-enforcement-explodes-in-2014.

[118]   Id.

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